Employers should “hold their nerve” in the downturn and make redundancies only as a last resort, the CIPD has urged.
Business should instead plan for recovery by retaining staff, said John Philpott, the institute’s chief economist, adding that the average cost of making an employee redundant was £16,375, excluding any hidden costs. He has created a formula to help employers work out the real cost of redundancy on their business.
Short-time working, reduced hours, pay freezes, wage cuts and sabbaticals were all legitimate ways of staving off redundancies, Philpott said. He advocated schemes by several car manufacturers as good examples of imaginative ways to reduce layoffs.
Toyota, for example, is due to halt production for two weeks at its plants in Burnaston, Derbyshire and Deeside, north Wales, later this year because of market conditions. For the first week, staff will carry out quality improvement work and training, then for the second week they will not be required at work. They will be given full pay for the fortnight.
Nissan took a similar tack in the run-up to Christmas, when production was cut at its Sunderland plant and the time used to either train or second employees to maintenance work. But the firm has since announced 1,200 redundancies, prompting further calls for industry-specific assistance from the government.
The CIPD’s warning came as the Chartered Institute of Purchasing and Supply revealed that the services sector, which accounts for over two-thirds of the UK economy, cut jobs at a record rate in December. There have also been a number of high-profile layoffs already this month, with the number of unemployed people increasing daily.
Philpott, who was speaking to PM ahead of attending this week’s “jobs summit” of business leaders, organised by the prime minister, urged the government to provide more support to help businesses retain staff. He called for more provision of the Jobcentre Plus Rapid Response Service, which helps anyone facing redundancy to retrain and look for a new job. Any government intervention package should also include further help for unemployed people, job subsidies for employers and job creation, focusing on “green” industries, he said.
Last week, Gordon Brown announced that 100,000 jobs would be created through government-commissioned projects, but Philpott warned there could be difficulties “in how quickly we can get these jobs on stream”.
The CIPD’s redundancy formula
Real cost of redundancy = (n × R) + (x × H) + (x × T) + ny(H + T) + Wz(P - n)
Where:
n = number of people made redundant
R = redundancy payments
x = number of people subsequently hired
H = hiring costs
T = induction/training cost
y = percentage quitting post redundancy
W = average monthly staff salary
z = percentage reduction in output per worker caused by lower morale
P = number of people employed prior to redundancies