How to reduce staff costs during a company downturn

Many companies in the UK and across the world are facing tough decisions and will be looking at ways they can reduce their costs. Reducing staff costs seems to always be an option but care must be taken in relation to how this decision is made and how the decision is applied.

Any change in relation to staff should be done in full consultation with the employee and must be with full agreement in writing.

We have listed a number of options below that could be considered by the employer when looking to reduce costs during a company downturn:

Reducing Costs

Before turning to redundancies of any kind, employers should take care to consider how budgets can be cut and costs can be saved in other areas of the business. For example, can client or entertainment budgets be reduced? Can contracts with suppliers of goods and services be reviewed with a view to reducing costs? And/or can other expenses and outgoings be reduced?

Restricting/banning overtime

This may be an effective way to reduce costs, especially if there is no business requirement for overtime.  However, banning or restricting overtime would need to be communicated carefully to employees, and employers would need to explain that it is a means of avoiding compulsory redundancies.  Employers will need to take particular care when dealing with employees who have come to rely on the additional pay, they receive from working overtime.


If one area of the business is busier than another, it may be possible to retrain an employee with transferable skills to take up a new role on a temporary or permanent basis. It may also be possible to carry out a restructure without the need for any job losses, by redefining existing roles in line with work demands. Any significant changes will need to be agreed upon in writing with the relevant employee. Any redeployed employees will also need to be given the training to ensure that they are properly equipped to perform the new role.

Job Shares

Employers can request volunteers for job-shares to assist with reducing staff costs. This arrangement enables two (or more) employees to split a full-time job between them, whilst entering into an agreement regarding hours/days of work and split of role/duties. This will evidently cut costs for the business without letting anyone go.

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Flexible Working Requests – Reducing hours/days worked

Employees can be invited to make flexible working requests with a view to reducing their hours or days of work. Or the employer can consider introducing a reduction in hours or days worked for a certain group of employees on a temporary or permanent basis. Employee consent would need to be obtained, in order to mitigate any risk of breach of contract and/or constructive dismissal claims.

Pay cut

An employer may consider making pay cuts, but this can be difficult to implement as, understandably, employees will probably not be receptive to this.

It’s best to have private conversations with the employee(s) and see if they are willing to take the pay cut as, without going through extensive consultation to obtain employee consent, enforcing pay cuts could lead to constructive dismissal claims and unlawful deduction of wages claims – so tread very carefully with this one. Senior management should not be exempt and lead by example, taking pay cuts and waiving their bonuses too.

Reduce Bonuses and / or Pension Payments

This may be considered and bonuses are usually discretionary.  There is a requirement for companies of a certain size to pay into a pension scheme for employed staff but if a company is paying into a pension scheme in excess of the statutory requirement, there is an option to decrease pension payments into the relevant scheme.  This should be done in consultation and with the outlines in any contractual changes.

Voluntary Redundancy

Although offering voluntary redundancy can take some control away from the employer in terms of selecting roles for redundancy, it is the employer’s final decision as to whether or not to grant an application for voluntary redundancy. Ultimately, offering a voluntary redundancy package will help in reducing staff costs in the longterm by reducing the need to make compulsory redundancies.


This is where the work undertaken by the employee is no longer required or that work, amongst a group of staff, has diminished and the number of staff employed is no longer required.

Statutory redundancy pay is as follows:

  • half a week’s pay for each full year you were under 22
  • one week’s pay for each full year you were 22 or older, but under 41
  • one and half week’s pay for each full year you were 41 or older

The length of service is capped at 20 years.  Any employee made redundant on or after 6 April 2020, the weekly pay is capped at £538 and the maximum statutory redundancy pay an employee can receive is £16,140.

The following will apply to each employee who is made redundancy:

  • redundancy pay
  • a notice period
  • a consultation with the employee(s)
  • the option to move into a different job
  • time off to find a new job

Whichever option decided upon by the employer, it is so important that the staff are treated fairly, communicated with at all times during the consultation, and agreed to in writing to avoid any future claims against the company.

For additional advice or further guidance on any of the above matters, please get in touch.