Labour Cost Planning 2021

While most people are happy to see the back of 2020, this year 2021 will also contain many challenges. The rollout of vaccines is encouraging from a public health viewpoint, however, economically it is uncertain what will happen once the Government cut the financial supports to business and individuals. We have asked Tara Cooney, HR Consultant with TSA Consultants to set the scene.

It is important that employers plan for varying economic scenarios as the year progresses. The management of labour costs, a substantial cost to any business, should be a key part of any set of business scenario planning. It is, however, an area of cost with substantial legal protections in the form of employment legislation and managing the expectations and morale of a team who have already been through a very challenging 12 months.

TSA Consultants are advising clients at the beginning of 2021 to focus on, and strive for, a positive business performance for the year ahead. We hope the contents of this article will lay some foundations for creating an appropriate business employment plan. Please note that each employer should seek individually tailored advice from their HR or legal support as their contracts of employment and/or work practices will impact uniquely on the creation of their plan.

General ways to reduce labour costs

Wage cuts

As a rule, you must get written acceptance for any wage cut or an employee may successfully claim a breach of contract. Explain the
position to employees and if they indicate agreement to a wage revision ask them to sign a letter accepting it on a temporary or permanent basis as agreed. To maximise the chance of success try to ensure fairness across the board with all colleagues. If everyone is contributing pro-rata, they will feel a solidarity and hopefully agree to play their role.

Hours cuts

Analyse the Contract of Employment for clauses regarding ‘hours of work’, ‘flexibility’, reference to ‘lay-off/short-time’ and reference to any ‘unforeseen emergency situation’. Ideally the Contract provides some ability to revise or reduce the hours. Some options for reducing rostered hours include:

• Lay-Offs on a last in, first out (LIFO) basis where those with the least service are temporarily removed from the roster while more senior colleagues retain their hours.
• Rotated lay-off where a roster for a set period of weeks is prepared and everyone shares work and lay-off time on rotation.

Three-day week

If an employee who works more than three days a week is reduced to three days or less, they can claim ‘Short Time Work Support’. This welfare payment is €40.60 per day. It is advised that the employer would look to implement this in a fair and transparent manner across the board on a LIFO basis.

Redundancies: Redundancy is a form of dismissal, there is no sugar coating it. For this reason, it is critical that employers follow a correct and legally sound procedure if considering departures from the roster. Employers should conduct a genuine business review and develop a credible plan for their business. This plan may indicate that some positions are subject to a viability review.

• The initial stage to this is to communicate with all employees informing them that tough decisions will have to be made in order for the business to survive and that some positions will have to be considered for redundancy in order to secure many others. If a voluntary redundancy scheme is being offered this will need to be announced at this stage also. If voluntary redundancy is not on the cards, an employer needs to identify positions that are at risk and notify these positions that their role
  is at risk of redundancy, this must be in writing.
• Usually, the safest means of identifying positions (where multiple exist) is on a LIFO basis. Employers can also base their
  selection criteria on a ‘skills matrix’ and score all candidates. The headings under which employees are ‘rated’ should be as tangible as possible. Employers must be aware that the skills matrix approach can cause more grievances as you are comparing employees and making judgements on who is better than who.
• At the ‘at risk’ meeting, the employer must explain to the employee in the position at risk the logic of the situation and invite him/her to come back with comments, thoughts, and criticisms, all of which should be considered by the employer. If no suggestions are brought forward and the consideration time elapses, the employer will likely indicate that the job is therefore
  being made redundant.
• Statutory redundancy is two weeks’ pay per year of employment plus one bonus week. For example, an employee with 3.5 years’ service is entitled to ((3.5 X2) +1) eight weeks’ pay tax free.
• There is an online calculator on the welfare.ie website which will produce a one-page PDF outlining the exact figure an employee is due.

In many ways, as stated, we hope the contents of this article will not be required by HAI members this year, however it is important to
have a grounding of how to consider managing labour costs now to support contingency planning in case more difficult economic times are coming.

TARA COONEY
Tom Smyth & Associates

Should you have any queries our office is contactable on 021-4634154 or e: info@tsaconsultants.ie

This Business Support article featured in the January/February edition of The Hardware Journal