Recruitment freeze best way for firms to cut labour costs
Mar 26 2009 by Anna Blackaby, Birmingham Post
Choosing to bring in recruitment freezes or terminating temporary agency contracts can save troubled businesses £10,000 more per employee than making redundancies, according to new research.
The Chartered Institute of Personnel and Development (CIPD) analysed the savings in labour costs created by the range of measures that businesses are taking to cope in the recession.
Recruitment freezes and terminating temporary agency contracts were found to save £27,000 per employee per year – £10,000 more than the saving made by reducing headcount which is £16,425.
The report, “Minimising redundancies: cutting costs, saving jobs, holding onto talent”, also shows how alternatives to redundancies can help organisations to become more resilient in coping with the downturn and better prepared for economic recovery.
CIPD chief economist John Philpott said: “Redundancy is only cost-effective in situations where there is a permanent or prolonged reduction in an organisation’s need for jobs currently undertaken by employees.
“Redundancy is a less effective means of cost cutting in a cyclical economic downturn involving a temporary rather than permanent reduction in the need for staff.
“It is primarily in such situations – which broadly equate to that which many businesses operating in the UK find themselves in at present – that a comparison between the cost-effectiveness of redundancy and alternatives to redundancy is most relevant.
“Visible efforts to seek alternatives to redundancy might have beneficial effects both on employee engagement and an organisation’s external reputation which may also boost its long-term performance. This is why as a general rule employers are advised to avoid redundancy as a first or early option for cost cutting in a cyclical economic downturn.”
The CIPD said there were encouraging signs, however, that employers were increasingly aware of the cost drawbacks to redundancy and more open to considering alternatives, compared with previous recessions.
The winter 2008/9 CIPD/KPMG quarterly Labour Market Outlook (LMO) survey of about 900 UK employers found widespread use of various alternatives to redundancy.
These include freezing recruitment (50 per cent), terminating temporary agency worker contracts (44 per cent), introducing flexible working (19 per cent), introducing short-term working (15 per cent) and cutting pay or bonuses (seven per cent).
One of the companies surveyed, service company Serco Solutions has chosen a lesser-used method of redeploying and retraining staff to great success.
Serco HR director – operations Ian Greaves said: “We have successfully redeployed more than 100 employees into other roles both across the wider Serco organisation and with partners and competitors.
“We registered potential candidates internally for redeployment and invited them to recruitment fairs that were attended by key decision makers from other Serco divisions, third-party partners and competitors who were searching for employees with similar skill sets in their local area.
“The process maintained the security of continuous employment for affected employees, offered options of alternative employment internally and externally, improved the morale of those affected and avoided costs that would otherwise have been incurred as a result of redundancy”.
