Page last updated at 17:51 GMT, Sunday, 25 May 2008 18:51 UK

How firms can rein in staff costs

By Jayne Vaughan
Head of employer consulting, KPMG

Generic staff photo
Most firms would rather cut costs than reduce the headcount

Businesses across the country are feeling the squeeze.

For most, the last cuts that they want to make are losing staff.

Sometimes, they do not have a choice, but often there are options to reduce employment costs without having to resort to redundancies.

Review the way your employees are paid, using "salary sacrifice" in exchange for benefits such as cash, pensions, deferred reward, share plans, tax-free expenses, flexible benefits or cars.

There is huge potential here to make remuneration more efficient for the employer and better for employees, particularly in the areas of national insurance contributions and tax.

Reduce employee costs

But not necessarily with redundancies.

If you need to save money, some of the things you could consider are recruitment freezes and overtime management. Avoiding redundancies means you do not incur the risk to employee morale and protracted uncertainty which could result in key people leaving and a fall in productivity.

Keep costs and risk down

If redundancies are unavoidable, there are a number of ways to do this.

The structure of the payments and related agreements can impact on tax and national insurance costs.

Employee communication and meeting the relevant consultation requirements are critical.

All these things need to be built in to ensure an effective redundancy programme which aims to minimise the risk to organisational reputation, business effectiveness and retention.

Review international secondments

Is your assignment policy still appropriate given the business environment?

Could compensation be delivered more tax-efficiently or could operational costs be reduced?

A compliance review could uncover opportunities for future cost-savings as well as any imminent issues.

Look at the way your senior people are paid

Could share-based plans be used more widely to reduce cash costs or to provide additional, performance-related, incentives?

Can you ensure key people are locked in and will be incentivised to deliver business objectives in a challenging environment?

Consider how effectively you are using your human resources team

Is the team supporting your business strategy during these challenging times

Consider resource planning, organisational design and recruitment effectiveness, all of which can make you more efficient and create cost savings.

Keep talking to your staff during challenging times

Employees who are not kept in the picture may become unsettled.

If so, their work will suffer and productivity will decrease.

An engagement plan can be put in place to help uphold morale and help safeguard your business whilst a cost-savings plan is being delivered.

Take a look at your pension scheme

The pensions landscape has changed dramatically in the past few months and by reviewing the structure of benefits and minimising scheme expenses you may be able to save significant sums.

Make sure you do not fall foul of the taxman

Put systems in place now to help ensure you do not incur future tax penalties and interest.

This way you could either avoid, or at least reduce the costs of, an employer compliance review.

Consider other ways of managing risk, for example in the areas of mobile employees and share plans, where the cost of getting compliance wrong can be high.

Be careful about remuneration communication

When it comes to communicating any changes to human resources and benefits packages to employees, show care.

Employees' packages are emotive.

Ensuring a full understanding of these saves resource and aids retention.

Any changes to benefits or remuneration must be communicated carefully and opportunities for feedback created and managed.

This avoids your people misinterpreting changes and morale and loyalty being affected.

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