Saving on Employee Costs

What Options do Employers have?

The COVID-19 pandemic has brought about huge changes to the business landscape in Ireland and whilst some organisations have been more directly affected than others, consequential impacts across the economy are vast. Accordingly, a vast number of employers are affected to a greater or lesser degree and, as a result, need to adjust their overhead base.

Employee costs are often the most significant expense in an organisation and ways to reduce that cost base are therefore a key focus at this time. The options available are both short term with relatively modest impact e.g. requiring employees to take holiday whilst out from work and in receipt of the Temporary Wage Subsidy Scheme to long term with material savings and consequences such as a restructuring/redundancy programme.

Below is a summary of options to consider but do remember that to protect your organisation from claims by employees arising from implementing these measures, you need to make sure that you follow a correct and lawful process.

The Temporary Wage Subsidy Scheme was put in place on 26th March 2020 to allow organisations to recover a significant proportion of the wage costs of their employees as a consequence of the COVID-19 pandemic. This scheme ceased on 31st August 2020 and is replaced by the Employment Wage Subsidy Scheme from 1st September 2020.

As of 1st September 2020, the Employment Wage Subsidy Scheme replaced the Temporary Wage Subsidy Scheme. Employers must complete a separate registration for this scheme as the eligibility criteria differs from the Temporary Wage Subsidy Scheme.

The scheme has two elements:

• It provides a flat-rate subsidy to qualifying employers based on the numbers of paid and eligible employees on the employer’s payroll
• It charges a reduced rate of employer PRSI of 0.5% on wages paid which are eligible for the subsidy payment

The rate of weekly subsidy the employer will receive per paid eligible employee is:

Employee Gross Weekly Wage                                   Subsidy Payable

Less than € 151.50                                                               Nil

From € 151.50 to € 202.99                                                € 151.50

From € 203 to € 1,462                                                         € 203

More than € 1,462                                                                Nil

Further guidance and full details on the scheme can be found here EWSS Guidelines

Whilst the scope for unilaterally reducing pay costs is limited, employers should consider whether they can freeze any planned pay increases and eliminate any non-contractual benefits. Beyond this, pay reduction is typically only possible by agreement. Whilst normally this is not likely where the alternative may be the closure of the organisation and job losses, employees may be willing to agree to a cut in pay at least for a limited period.

One option here if cash flow is the issue, is to agree to pay cuts in the short term with any shortfall being repaid within an agreed time scale.

Always remember that your staff should be paid at least the National Minimum, and the changes to terms agreed in writing.

Similar to cutting pay, a reduction in hours can generally only be by agreement with the employee unless there is contractual provision to impose it. However, such a reduction in the current environment may be achievable. Indeed, it is likely to be preferable to an employee to work less hours for less pay than the same hours for less pay!

As for an agreed pay cut, do make sure that you follow an appropriate process with the outcome agreed and documented.

Shorter working hours may be positively welcomed by some members of staff so think about asking for volunteers as a first step particularly if you only need a relatively small reduction in hours across your organisation. A period of unpaid leave may be also appealing to some staff so again think about asking if anyone wishes to take an unpaid period of absence.

Contractors, provided of course they are genuinely contractors and not “disguised” employees may be terminated without the risk of an unfair dismissal claim. However, you should of course comply with the terms of their contract when terminating as they will usually be subject to a specified notice period or, if not, reasonable notice will usually be implied.

Requiring staff to take holidays accrued/already scheduled, particularly those that are out of work and in receipt of the wage subsidy scheme, is a very sensible option to consider as most of their holiday costs will be covered by under the wage subsidy scheme with the employer only bearing the cost required to top the employee up to full pay whilst they are on holiday – at least until 10^th August 2020. Requiring those who have remained in work to take holiday does not save money in the short term, but will help ensure a full workforce is available once business picks up as the year goes on and lockdown eases.

Remember that as an employer you must give notice to the employee of at least one month prior to the dates you wish for them to avail of their leave.

Outsourcing to allow greater focus on core business activities continues to increase as more and more organisations understand the benefits and cost savings if you get outsourcing right. We know from our own experience as providers of outsourced payroll and HR options that considerable savings can be made by using an organisation dedicated to the efficient provision of the outsourced activity. Whilst it can result in job losses, the starting point is that any employees focused on the activity that is outsourced automatically transfer to the new provider, so it may be even more cost effective than first anticipated. Look also to understand the hidden costs associated with employing staff to carry out non-core functions – e.g. office overheads, software costs, sickness and holiday absences and management time. Add these to the direct salary and associated costs and the savings make this a very worthwhile option to explore.

Implementing redundancies is usually the most severe step that an employer takes to reduce workforce costs. The impact on the individuals that are affected are likely to be serious and for that reason there is considerable statutory regulation in place to ensure that employers conduct redundancy terminations in a fair way. It is therefore essential that employers make sure that they prepare effectively before commencing the process.

Normally employees who have been placed on temporary lay off or short time working for a period of 4 weeks or more, or 6 weeks in the last 13 weeks could claim redundancy from their employer.  This has been paused during the  COVID-19 emergency period however if the employer is unable to bring staff back to work on their full contract during/after the lifting of all restrictions, then redundancy will need to be considered.

We view these as keys steps when making redundancies:

The above is only a summary guide of options to consider when needing to make reductions in employment costs. It is by no means a full guide to all of the steps that should be taken when implementing such measures and does not factor in multiple scenarios employers may be facing. If you do need further assistance please feel free to contact us for a no obligation to chat as we would be happy to assist with any of these matters.