How can a company cut workforce costs without implementing redundancies?

First published Sunday Business Post May 2009

Reproduced by permission
Hujo Gunn
May 2009
Sunday Business Post

Nearly all business sectors in Ireland are struggling to contain their costs and where possible reduce them in order to manage and survive in the current downturn. The main cost area in most businesses are people/human capital costs and this is the first area normally looked at by companies when seeking to implement a cost reduction programme.

Unfortunately many employers opt to implement redundancies without fully exploring the alternative solutions or ways to reduce their human capital and other costs. In fact a significant number of companies don’t know the actual cost to their business of a full time equivalent employee and this makes it even harder for them to properly assess what costs (if any) they can reduce without completely removing the position. Also most HR personnel in companies are not aware that the cost of removing an employee can be as much as 2 ½ times the person’s salary.

Therefore it is highly recommended that company HR departments fully review all staff related costs to see where saving can be achieved, but also look and see if there is a need to make an additional investment in certain areas. It is more important than ever to motivate and develop high-performers, improve performance management and put in place robust incentive plans that will help drive businesses forward during this challenging time. It would be a mistake for companies to focus totally on costs, when the talent agenda remains ever more critical to employers.

Staff Costs Management Options 
The following are some staff related cost areas where companies could look at imposing reductions, without having to make an employee redundant:-

1. Overtime:

  • Can it be reduced or the % uplift reduced?
  • Can time in lieu be given instead of pay?


2. Salary Freeze/Pay reduction:

  • Most private companies have implemented pay freezes and/or across the board pay cuts. With proper engagement and communication could you company implement this?


3. Fringe Benefits:

  • Does your company need to provide fringe benefits in the current climate? Can these be phased out with no significant impact on staff (i.e. news papers, free/subsidised canteen, free mobile phones etc)?

4. Review Incentives:

  • Are your incentives/bonus aligned to the benefits delivered/key strategic objectives?

5. Pension Costs:

  • Do your employees know/value their pension benefit? Can the company reduce your pension funding/administration costs?

6. Employee Utilisation:

  • Are employees being fully utilised? do you have an absenteeism problem and are employees being paid while out on sick leave? Can part-time or reduced hours working be implemented in areas that are not currently busy?

7. Performance Management:

  • In these challenging times can you afford to have people in your business who are not performing and who are taking up significant management time? Can these cases be addressed immediately to either improve performance or transition them out of the business?

8. Early Retirement:

  • Are their employees close to retirement who could be offered early retirement on a cost neutral basis to the company?

9. Career/Travelling Breaks

  • Have you considered offering employees the opportunity to travel or take a career break?

10. Contractors

  • Are you outsourcing work to contractors which could be done by your own employees with the right training?

Increasing Employee Income Generation 

In order to survive, most companies will not only have to cut costs but also need to at least maintain and if possible improve income generation for the company. Focused investment in your employees at this time may help improve profit margins, and help motivate employees.

For most organisations, managing their learning and development budget and identifying its effectiveness, has been a challenge. One of the first casualties for organisations looking to control costs during a downturn is often the L&D budget, but are companies shooting themselves in the foot by doing this? Has your company asked itself the following questions:-

  • Are your employees sufficiently trained to sell your products or services?
  • Are you loosing business due to poor customer support or response times?
  • Do your customers understand the value to them of your company’s products or services?


If not, then your company is loosing money and no amount of cost cutting (especially in the L&D area) is going to protect your business in the long term.
A relatively small investment in focused L&D training can help protect and increase your companies income while simultaneously motivating your employees and improving moral in your business.