When times are tough, payroll often feels like the biggest pressure point for small businesses. Redundancy may seem like the only way to cut costs quickly – but letting people go is disruptive, demoralising, and can lead to the loss of valuable skills just when you need them most.
The good news? There are a number of creative alternatives to redundancy that can reduce costs while preserving jobs. Even if some redundancies prove unavoidable, exploring these options first shows good faith to your employees and can help you stay on the right side of employment law.
Below are some practical ideas for small employers looking to safeguard their workforce and their business.
1. Reduce hours or introduce short-time working
One of the simplest ways to cut costs without losing staff is to reduce working hours temporarily. This could mean moving full-time staff to part-time, shortening the working week, or closing the business for part of the day.
Short-time working requires contractual agreement, so you’ll need employees’ consent unless your contracts already allow it. Be transparent about the reasons, set a review date, and make sure the reduction is applied fairly.
2. Offer voluntary reductions in pay or benefits
Some employees may prefer a temporary pay cut to losing their job entirely. This can be structured as:
- A percentage pay reduction across the board,
- Suspending bonuses or overtime premiums, or
- Reducing employer pension contributions temporarily (with legal advice).
Any change to pay or benefits must be agreed in writing. It’s essential to be open about the business case and to ensure that senior managers lead by example.
3. Freeze or slow down recruitment
Stopping new hires can quickly reduce wage costs without affecting current staff. You might also:
- Redeploy existing staff to fill vacancies,
- Delay promotions or new job grades, or
- Use temporary or agency staff only where essential.
This helps avoid redundancies while still meeting business needs.
4. Redeploy or retrain staff
Sometimes the issue is not overall headcount but a mismatch between current skills and future work. Before considering redundancies, map your workforce skills and identify areas of under- and over-capacity.
Offering training, cross-skilling, or moving people into different roles can fill gaps without hiring externally. This also boosts employee engagement and flexibility for the future.
5. Introduce job sharing
Job sharing allows two employees to share the duties (and pay) of one full-time job. It can be attractive to staff who want more work–life balance and can help you retain talent on a tighter budget.
To make it work, define responsibilities clearly, ensure good handover processes, and review performance regularly.
6. Encourage sabbaticals or unpaid leave
Offering extended unpaid leave or sabbaticals can temporarily reduce payroll costs without severing employment relationships. Employees might use the time for travel, study, or caring responsibilities.
You’ll need to agree terms in writing – how long the leave lasts, what happens to contractual benefits, and how you’ll reintegrate staff when they return.
7. Use natural attrition
If your business can afford to wait, allowing numbers to reduce through normal turnover (resignations, retirements, or the end of fixed-term contracts) avoids the upheaval of redundancies.
Communicate openly with staff about your intentions so they understand why vacancies aren’t being filled.
8. Flexible working and remote options
Sometimes the costs driving redundancies are not just salaries but overheads such as office space, utilities, or travel. Offering more remote or flexible working may allow you to downsize premises or reduce operating costs while keeping your team intact.
9. Temporary lay-offs
In very specific circumstances, you may be able to lay employees off temporarily without pay if your contracts allow for it (or with employees’ agreement). This can help bridge short-term downturns.
However, lay-offs carry legal risks. Employees laid off for more than four weeks (or six weeks in a 13-week period) may be entitled to claim redundancy. Take advice before using this option.
10. Involve your staff in problem-solving
Often the best ideas come from the people doing the work. Share your financial challenges with your employees and invite suggestions. They may propose cost savings, process improvements, or alternative working patterns you haven’t considered.
This collaborative approach builds trust and can make difficult measures more acceptable.
11. Communicate honestly and often
Whatever measures you adopt, the key to success is communication. Employees are far more likely to agree to temporary changes if they understand:
- The financial situation,
- The steps you’re taking to avoid redundancies, and
- How long changes are likely to last.
Be clear that any measures are temporary and will be reviewed regularly. Document agreements in writing to avoid misunderstandings.
Final Thoughts
Redundancy isn’t always inevitable. For small businesses, creativity and open dialogue can preserve jobs, protect morale, and position you for recovery when conditions improve. By exploring alternatives – from reducing hours to redeployment and job sharing – you show your team that you value them and are doing everything possible to safeguard their livelihoods.
Handled well, these measures can be a win–win: immediate cost savings for the business, and greater security for your people.
If you would like any further advice, do get in touch.