Employers Under Fire

With increases to National Insurance Contributions (NIC), the imminent removal of wage banding for the national minimum wage and an onslaught of new worker rights to contend with its not surprising that employers are feeling under fire.

For the retail sector where profit margins average a paltry 4%, several high street retailers have given fair warning of salary and job cuts in response to the government’s Autumn budget and Employment Rights Bill.

Can employers weather the storm and avoid taking these measures?

For many employers its simply a matter of immediate cost cutting rather than longer term initiatives.

Introducing a pension salary sacrifice arrangement is an obvious way to offset some of the National Insurance (NI) increase. Under a salary sacrifice arrangement the employee’s contribution is taken from pre-taxed gross earnings avoiding both employer and employee NI. It’s also possible to convert bonuses into additional salary sacrifice pension contributions as a further means to save NI.

Following government changes in 2017, traditional salary sacrifice schemes have been largely restricted to pensions and cycle to work schemes and while it’s still possible for an employee to sacrifice some of their earnings for a benefit (such as electrical goods, gym membership etc) under current rules the only saving will be the employee’s NI (no available relief for employer NI and income tax.)

For those employers that already operate a pension salary sacrifice other cost savings initiatives are less obvious, however focussing on some of the following could help over the longer term.

1. Reduce absenteeism

A third of employer’s report being short staffed at least once per week. The causes of absenteeism are varied but can be a result of workplace stressors, workplace bullying, family responsibilities, mental health etc. Employers need to understand the causes and then consider what changes can be made (such as flexible working to help employees with caring responsibilities etc)

2. Take a good hard look at your roles

Is there a better way of structuring them? Employee disengagement produces quiet quitters who sap the productivity of all around them. Is it possible to increase levels of autonomy or a greater sense of purpose so that an employee feels more engaged and is less motivated by cash rewards.

3. Upskilling

When trying to cut costs it would appear counterintuitive to be spending on training? However, ensuring employees are tooled up and ready for either a horizontal or vertical move ensures internal candidates get to fill senior roles and the vacancy moves down the chain which reduces recruitment costs.

4. Reduce attrition

The average employer attrition rate in retail is just over 50%, even if you needed to reduce your headcount the chances are you will still have leavers that need to be replaced. Churn costs money – when factoring recruitment costs, management time and productivity gaps its estimated that the cost of a replacement is on average between 6-9 months’ pay. Do you know why your employees are leaving?

5. Reduce overtime

Short staffing can be a major cause of overtime (see reduce absenteeism above), however there are other causes such as a problematic task, problems with suppliers, workload distribution imbalance, poor workload forecasts, convoluted approval processes etc. Every business should understand the true causes of overtime.

6. Get employees to take their holiday

According to Gallup research, burned out employees cost an employer £2,800 for every £8,000 of salary due to a loss of productivity. On termination the same employee will be paid their full salary for each day of stockpiled holiday. It can therefore be a double whammy for employers.

7. Reduce / remove discretionary bonuses

Research suggests monetary rewards have limited motivational impact and that non-monetary rewards can be longer lasting. Over time focussing on intrinsic motivators such as recognition, career opportunities /autonomy, training etc. Can reduce the need to provide financial rewards and help with attrition (see above).

Despite the above recommendations the current position that many employers find themselves in is not lost on me. The employment relationship has changed markedly over the past 5 years and the line between employer and employee has been redrawn Simply getting employees to fulfil their side of the ‘work for pay’ bargain can be struggle and the time and appetite for additional HR initiatives such as those outlined above can be in short supply notwithstanding the positive gains, they can create.

As an old proverb goes, "Ask not for a lighter burden, but for broader shoulders." Currently, I suspect that most employers would seek both.