Firms urged 'try to keep staff'

The UK unemployment rate rose to 6% in October

Redundancies should be a "last resort" as firms trim costs in the economic downturn, the Chartered Institute of Personnel and Development (CIPD) says.

Planning for recovery by keeping staff is a better approach, it added, saying an average redundancy costs employers £16,375 before any savings are made.

The CIPD earlier warned 600,000 UK jobs could go this year. Others have said unemployment could hit three million.

Latest UK statistics say 1.86 million people were out of work in October.

That figure was the highest since 1997, taking the overall unemployment rate to 6%.

'Huge pressure'

'THE REAL COST OF REDUNDANCY' The CIPD has put together a formula to estimate the financial cost of redundancy: (n × r) + (x × h) + (x × t) + ny (h + t) + wz (p - n) n = number of people made redundant r = redundancy payments x = number of people subsequently hired h = hiring costs y = percentage quitting post redundancy t = induction/training cost y = percentage quitting post redundancy w= average monthly staff salary z = percentage reduction in output per worker caused by lower morale p = number of people employed prior to redundancies Source: CIPD

The CIPD's chief economist John Philpott conceded that, with the UK widely acknowledged to be in the grip of a recession, many firms were under "huge pressure".

"Restructuring is a fact of economic life that can never be ruled out," Mr Philpott added.

"But while making people redundant can seem one of the most straightforward ways of cutting costs, redundancy is itself a significant cost to most organisations with a number of direct and indirect or hidden costs."

He added that this was particularly true if redundancies were an employer's first resort in difficult times "and have to be quickly reversed by renewed hiring when economic conditions improve".

"We urge employers to plan for recovery by investing in and growing their people, rather than reducing their workforce."

"Employers should hold their nerve and focus on retaining talent and investing in the skills of their people.

"It is these people with their commitment, productivity and ability to add value who will ultimately keep individual businesses and the whole of the UK competitive, and put us in a strong position to recover from the downturn quickly."

'Good sense'

The CIPD has put together a formula which it says helps firms calculate the financial price of cutting its workforce.

And it estimates the average cost of redundancy reaches £16,375 per sacked employee before hidden costs - such as higher staff turnover and falling productivity are factored in.

"This is likely to be a conservative estimate and provides a hard business case for why redundancies should be a last resort in the downturn," Mr Philpott said.

The TUC welcomed the report which it said made it clear "that it makes good business and economic sense to explore all the alternatives before laying off workers".

"Unions often have to challenge employers who turn to redundancies as their first response in troubled times," general secretary Brendan Barber added.

He added that raising statutory redundancy pay would be a good way for the government to make redundancy "a less attractive option for employers".

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