HR Guideline: Managing Employee Costs
Managing Employee Costs: Guideline
Northern Ireland
ILCU HR Department: Autumn 2009
Disclaimer
This document does not represent legal advice or purport to be a legal interpretation of legislation or standard rules. Whilst every effort is made to ensure the information is accurate, responsibility cannot be accepted for any liability incurred or loss suffered as a consequence of relying on any material published herein. Appropriate professional advice should be taken before acting or refraining to act on the basis of this document.
© Irish League of Credit Unions. No part of this document may be copied without written permission from the Irish League of Credit Unions.
Table of Contents
Introduction 3
Section 1: A Step-by-Step Approach 4
STEP 1: Gather Information 4
STEP 2: Analysis 4
STEP 3: Decide on Options 5
STEP 4: Consultation and Negotiation 5
STEP 5: Implement Changes 6
STEP 6: Follow-up 6
Section 2: Cost-Cutting Options and Staffing 7
2.1: "Soft" options 8
a. Recruitment freeze 8
b. Review and Amend Policies (including unpaid leave and untaken leave) 8
c. Re-evaluate benefits 9
2.2: Restructuring of the workplace 12
d. Flexible Working Arrangements 12
e. Reduce Hours of Work 13
f. Career Breaks 13
g. Retraining 13
h. Short-time working or lay-offs 14
i. Non-renewal of Temporary Contracts 16
2.3: Retirement and redundancy 17
j. Voluntary Departure: Early Retirement 17
k. Voluntary Departure: Voluntary Redundancy 17
l. Compulsory Redundancy 18
In Summary 19
Section 3: Consultation and Negotiation 20
3.1: Purpose of Consultation and Negotiation 20
Consultation Process: A Suggested Approach 21
3.2: Consequences of Poor Communication 22
Therefore, consider all the options… 22
Section 4: Follow-Up 23
Impact on Employees Following Change 23
Appendix 1: Sample Redundancy Policy 25
Appendix 2: Redundancy Key Points 28
Redundancy Policy and Procedures 33
Potential legal Claims against the credit union 33
Appendix 3: General Dismissal Procedure 35
Analyse Results 38
Sources of Information 39
Introduction
The current economic climate is one of declining national output, deflation for the first time in 40 years and rising unemployment[1]. For credit unions, the poor economic environment, declining demand for lending and an ever-increasing threat of rising bad debt levels, mean that many are now in a race to reduce their overheads.
On the face of it, reducing the credit union’s head-count may appear to be the most obvious route to cutting costs. However, it is vital to understand the full implications of taking such a drastic measure, as “…redundancies are expensive, disruptive and time-consuming. In addition to this short term damage, the loss of experience, key skills, and corporate knowledge, may prove hugely detrimental to a company’s ability to regain its momentum and remain competitive in the long term.”[2]
In other words, job cuts should not be seen as inevitable.
The governance role of the board of directors is to develop a strategy to contain costs, while also ensuring optimum service delivery to members in the most efficient way. In the current climate credit unions need to work smarter in order to achieve this goal. It is important to consider all options, and to approach any change in a planned and organised manner.
Employees are not just a cost to the credit union; they are one of the credit union’s strongest assets. The credit union needs a strong, committed workforce to effectively guide the business through this difficult time and this is a key point to remember throughout any decision-making process.
This document aims to provide information and guidance for those credit unions that need to reduce overall costs, which includes a range of options, up to and including termination of employment by reason of redundancy. However, it is hoped that alternatives to redundancy will avoid as much as possible losing valuable employees.
Note: many of the options mentioned in this document cannot be implemented without obtaining the express agreement of employees, since any change to pay or other benefits is a change to an employee’s terms and conditions of employment. Neither employer nor employee can unilaterally change the terms and conditions of employment. Consultation and negotiation must take place before any decisions are implemented and changes to an employee’s terms and conditions of employment must be achieved through getting agreement with employees.
Please note that this is not a guide on redundancy legislation and in all situations involving a decision that will significantly affect employees’ terms and conditions of employment, professional assistance should be sought.
Section 1: A Step-by-Step Approach
A suggested step-by-step approach is provided below to assist the decision-making process where the credit union needs to balance its staffing requirements with the need to make cost-cutting measures within the credit union. Each step in the process is discussed in more detail in the subsequent Appendices:
STEP 1: Gather Information
§ How much do we need to save? The accounts will provide the figures, also consult with the auditor, PEARLS ratios[3] or any other expert opinion available
§ Review work practices and processes: Can the credit union be run more efficiently? Should some products, services, internal reporting structures or work practices be revised or discontinued?
§ Review staffing levels: How do staffing levels compare with other credit unions in the area/nationally? (On average the member-to-staff ratio in Northern Ireland is 875 members per employee[4] ).
STEP 2: Analysis
§ What is the cause of the financial problem? Is it temporary or longer-term in nature?
§ What cost-savings can be made? Review all areas of expenditure with a view to making changes, e.g. renegotiation of external contracts, equipment, premises costs, waste management, outsourcing, utility bills etc. Also consider what income generation may be possible, e.g. through renting out part of the premises
§ What is the amount required to be saved in relation to staffing? Having identified cost savings across all other areas of the business, the target for cost saving in the area of staffing can be gauged.
STEP 3: Decide on Options
Consider all options before selecting most appropriate to address the credit union’s needs. The following are a range of suggested options[5], you may come up with others:
a. “Soft” Options: require little organisational upheaval, e.g.
1. Recruitment freeze
2. Amend policies and procedures
3. Re-evaluate benefits
b. Office Restructuring: require some organisational change, e.g.
4. Flexible Working Arrangements
5. Reduce Hours of Work
6. Career Breaks / extended unpaid leave
7. Retraining
8. Short time working/layoffs
9. Non-renewal of temporary contracts
c. Retirement and Redundancy: require termination of the employment contract, e.g.
10. Voluntary Departure: Early Retirement
11. Voluntary Departure: Voluntary Redundancy
12. Compulsory Redundancy
STEP 4: Consultation and Negotiation
Neither employer nor employee can unilaterally change terms and conditions of employment. Therefore a consultation process MUST take place with employees, which should involve the following:
1. Meet with employees:
§ present the current situation;
§ highlight the credit union’s proposals to address the problem;
§ Ask employees for feedback/suggestions;
§ If redundancy is an option, ensure employees are provided with opportunity to present alternatives;
§ After meeting: Provide employees with summary in writing.
2. Provide employees with a contact person with whom they can discuss concerns, ask for clarification etc.
3. Give time to employees (e.g. 2-3 working weeks) to come back with alternative suggestions
4. Collate employee feedback/suggestions
5. Reconvene meeting with employees:
§ Provide update and action required;
§ Explain why staff suggestions were/were not utilised;
§ Communicate plan for implementation of changes including time frame/dates;
§ Advise employees that some changes will require specific individual approval from each employee affected by the change;
§ After meeting: provide employees with summary in writing.
6. Keep records of entire process: from initial decision to make workplace changes through to final implementation of change.
STEP 5: Implement Changes
1. Design memo/letter for employee to sign: Any change to terms and conditions of employment requires employee consent to effect the change;
2. Provide two copies of the document to each employee affected by the change;
3. Give time frame for return of signed document;
4. Keep signed copies on file: the signed document represents a change to the employees’ terms and conditions of employment;
5. Refer individual employees to the grievance procedure in the event of an issue arising.
STEP 6: Follow-up
Ongoing monitoring of the situation is required in order that the following is addressed:
§ Have the cost-cutting measures sufficiently addressed the credit union’s financial concerns?
§ Employee morale, performance and productivity following the implementation of change: re-training and ongoing communication is essential to maintain positive workplace relations and to avoid conflict as much as possible.
Section 2: Cost-Cutting Options and Staffing
The credit union should make every effort to avoid job losses; redundancies should only ever be considered as a last resort. This Section looks at various alternatives that should be given real consideration before resorting to redundancy. These options are not mutually exclusive; in practice they can be used in sequence or combined with one another. As mentioned earlier, this is not a complete list of available options: the credit union may come up with others.
Note: Remember that no changes to terms and conditions of employment can be made without securing specific employee consent to the change.
The options suggested are divided into three categories and range from ‘soft’ options, i.e. options that require little organisational upheaval, to office restructuring, to termination of employment.
a) "Soft" options: involve the application and enforcement of existing workplace systems, regulations and policies. These measures include:
§ Recruitment freeze
§ Review and amend policies (including unpaid leave and untaken leave)
§ Re-evaluate benefits
b) Restructuring of the workplace: includes measures such as unpaid leave, job-sharing, part-time work, and, in some cases, the shedding of non-essential activities or services.
§ Flexible working arrangements
§ Reduce hours of work
§ Career breaks
§ Outsourcing
§ Retraining
§ Short-time working or lay-offs
§ Non-renewal of fixed term contracts (in line with Statutory Procedures – see page 16)
c) Retirement and redundancy:
§ Voluntary departure: options that provide incentives for employees to leave voluntarily, either through early retirement or the provision of generous severance packages.
§ Compulsory redundancy, where employees are required to leave employment without their consent.
2.1: "Soft" options
a. Recruitment freeze
This occurs where an employee leaves and is not replaced. Effective in cutting staff numbers in larger organisations or where there is a high staff turnover, for many credit unions with smaller staff and low turnover, this option may not yield many results.
Recruitment and promotion freezes are always temporary in nature. Even if the freeze lasts a number of years, at some stage new staff must be hired and promotion reinstated. The credit union can at least stop increases in staff numbers through:
§ Freezes on the hiring of permanent or contract employees
§ Elimination of certain vacant posts
§ Suspension of the automatic replacement of staff who retire normally
This option is only relevant if, following analysis and possible work reorganisation, it is found that the credit union is over-staffed.
Redeployment
Redeployment or reassignment can be an effective means of avoiding redundancies, for example by filling internal vacancies with existing employees who have experience of the credit union’s ethos, culture and working practices[6]. This not only allows the credit union to retain valuable employees and existing knowledge, it also provides employees with the opportunity to point their careers in a different direction and to tackle new challenges. Remember, however, that effective redeployment involves planning and co-ordination and is also likely to require retraining.
b. Review and Amend Policies (including unpaid leave and untaken leave)
The credit union should review all policies with a view to achieving a reduction in expenditure. However, be pragmatic! Select only those changes that will achieve real savings for the credit union rather than making a range of smaller changes that will only cause staff conflict without yielding any real cost saving benefit to the credit union. Some examples of areas to consider include:
Statutory Leave entitlements
How is annual leave, parental leave and other statutory entitlements currently managed within the credit union? Tighter policies may result in the better management and control of overall leave while potentially reducing the need for additional staffing.
As a short-term measure, actively encourage all employees to use up any untaken leave entitlements, such as annual leave. Leave should be managed and scheduled in such away that it does not result in any additional costs, and therefore should be staggered. Remember, under the law, the employer has the right to determine the manner in which annual leave is taken.
The credit union could consider implementing a period of unpaid leave for all staff, to be taken at a time of the credit union’s choosing, e.g. during quieter business periods during the year (post-Christmas and post-AGM for example). The deduction of the unpaid leave from salaries could also be taken on a phased basis to avoid a substantial decrease in pay in any one pay period.
c. Re-evaluate benefits
A re-evaluation of current employee benefits may result in significant cost-savings. In particular, tightening up on such items as expense allowances, car and mileage allowance, and sick pay (where sick pay is paid in excess of the Statutory Sick Pay scheme) can all contribute to savings. However, the credit union must be careful if reducing benefits to ensure that it is not targeting a particularly vulnerable group of employees. For example, adjusting benefits such as maternity benefit and certified sick pay should be an absolute last resort, as these measures may incur claims of discrimination if they are targeted carelessly. Examples of employee benefits include:
§ Overtime
§ Expenses and allowances (e.g. mileage rates, mobile phone allowance etc.)
§ Pay
§ Pension/life assurance
§ Additional holidays (in excess of the statutory entitlement of 28 days including public holidays)