The True Cost of Redundancies

Last week the CIPD called for employers to delay making people redundant. They suggested that companies need to hold their nerve in the current downturn and make redundancies only as a last resort. The reason: Employers are not calculating the true cost of redundancy. We examine their advice and ask: Should you lay off making redundancies?

Businesses should be making more careful decisions about redundancy and taking into account plans for recovery by calculating the cost of retaining staff against laying them off according to John Philpott, the CIPD’s chief economist. With the cost of making an employee redundant averaging 18,000 Euro senior management should be asking themselves, what else could we be doing with that money? There is a need to balance the cost of redundancies against the potential benefits of retaining staff in the current environment.

Surely keeping employees on gives rise to a cost in itself? Of course it does. There is the cost of salary to start with, and also ‘hidden’ costs such as training, providing parking spaces, light and heat, etc.

But that is also where companies need to think creatively. They need to ask: What are the costs of letting staff go? These include making redundancy payments and ‘golden handshakes’, but should also (according to economists) include the costs of re-employing those same workers or others on the upturn.

Creative companies are offering staff sabbaticals instead. Permanent TSB, for example, gave some of its employees a two year ‘holiday’ and guaranteed jobs for workers on their return. This is a win-win situation, as the employer saves money in terms of redundancy and recruitment costs, and the employee has a chance to travel or do something alternative with their time secure in the knowledge that their job remains open to them on their return. The cost of making the average employee in an Irish bank redundant, and then hiring someone to replace them in two years time is approximately 50,000 Euro. By offering a sabbatical both parties can benefit.

Another option is to introduce short-time working or reduced hours. One professional services firm People Matters works with has reduced the number of hours their staff work in the week. Many of their employees are using their increased free time to study and learn new skills using facilities at the employer’s premises. The company is also using the opportunity to carry out maintenance of the office premises. Honda, Toyota and Nissan plan to halt production at their plants later this year and use the time for overhaul of their plants. HP has asked employees to take holidays in March and April (when their plant is less busy) and avoid the Summer shortfall in employees. This also avoids them having to employ part-time staff as replacements. Pay freezes and wage cuts, while unpopular, offer a better alternative to losing a job or losing a valuable staff member. One fashion retailer has asked employees to take a 10 per cent pay cut and most staff have shown a willingness to take the cut in preference to being made redundant.

According to the CIPD’s Philpott companies need to work out the real cost of redundancy before making any hard decisions. He has suggested a formula for calculating the RCoR (Real Cost of Redundancy). Before deciding on any redundancies People Matters recommends using his formula as a way to calculate the true cost:

RCoR = (N x R) + (X x H) + (X x T) + ny(H + T) + Wz(P-N)

Where:

N = number of people potentially being made redundant
R = cost of redundancy payments (circa 18,000 Euros)
X = number of people who will need to be hired in future
H = hiring costs (circa 16,500 Euros)
T = induction/training cost (average 3,500 Euros)
Y = percentage quitting post redundancy
W = average monthly staff salary
Z = percentage reduction in output among remaining employees due to low morale
P = number of people employed prior to redundancies

Advice for Lone Parents

My wife passed away last year and I am now a lone parent. Since last September I have been responsible for looking after our two children (aged 5 and 7). I had to give up my fulltime job in the bank and financially things are tight. I realise that the two Children will grow up fast and when they both in fulltime education I may have the opportunity to do more work. Have you any advice?

According to the CSO, there are over 189,000 lone parent families (including widowers) in Ireland, and of these 85,000 are in receipt of social welfare support through the One Parent Family payment (OPF). Just 2 per cent are male, and 12 per cent are separated – so you fall into a ‘category’ that is often the least informed about supports. The first thing to do, in the short term, is make sure that you are receiving the Child Allowance and One Parent Family payment even if you are working. You may also be eligible for certain other allowances such as a family income supplement, the early childcare benefit for your five year old, a back to school allowance for books and clothing for your seven year old, as well as rent/mortgage interest supplements, etc.

In many countries governments make financial payments to one parent families, but this stops and recipients are obliged to return to work when their youngest child is anywhere between three months of age (in the USA) or five years old (in the case of Australia). Ireland has one of the best systems in place: One Parent Family support is made from the time a child is born until the age of 18 or 22 years of age, if in full time education. There are no conditions set regarding working while receiving this payment. It is a means tested payment and a lone parent can earn up to €146.50 per week without loss of the benefit. Income between that and €425 assessed at 50% and a reduced rate of OPF is payable. Contact the Department of Social Welfare - www.welfare.ie - and arrange to have yourself means-tested for the benefit. Incidentally, a campaign to combat fraud with one parent families last year realised almost EUR 142million.

Research has shown that there is little active engagement by government departments and voluntary help groups with recipients of OPF supports, unless they seek it themselves. This is particularly true among men. Yet there are some excellent on-line supports available. Four good sources of information are the Department of Social Welfare website - www.welfare.ie, the One Parent website – www.oneparent.ie, the website of One Family – www.onefamily.ie, and an independent website – Solo.ie. Visit these sites and get your hands on a new information booklet detailing family supports and services across a range of Government Departments and agencies.

A new research report, Lone Parents and Employment: what are the real issues? was recently published by One Family. Another useful report was written by UCD. They contain useful, general advice. One of the key results of these reviews is that two-thirds of those in receipt of the OPF are working, but in low paid, part time work.

The Family and Community Services Resource Centre Programme commenced in 1994 and since then 107 Family Resource Centres have been established nationwide. The activities supported by the Resource Centres are designed to meet the needs of the local community and include the provision of: information, advice, training and practical assistance to community groups including child-care facilities for those attending courses provided by the project and after-school clubs. Visit your local Resource Centre and find out what they have to offer.

Lastly, as you say, you need to think about the medium-longer term. Your youngest child will be going to school fulltime in September 2009, and now is a good opportunity for you to consider returning to fulltime work. An obvious first place to start looking is with the financial sector, but with the current economic situation, you may want to look to other industries where you can utilize the same skills. Career direction coaching may help you to establish what your strengths are, where your motivations lie and how to set goals for yourself in the coming year.

Have you still got the January blues?

Well there is an explanation. Dr. Cliff Arnall, a health psychologist at Cardiff University, has devised a formula to work out the worst day of the year and according to his formula, Wednesday, 21 January is the blues day for 2009. His calculation is based on the expected poor weather, debts owed for seasonal spending, the time since Christmas, the period of time before you abandon New Year's resolutions, the dates when motivation levels seems to be at their lowest and the timing for the need for action to escape the blues. In other words, today!

So to cheer you up, in this issue, our Career Doctor answers an interesting career query from a parent on employment and benefits and in our Research and Resources section we provide you with some interesting snippets of information that you may find useful in the workplace.