Downsizing and redundancies: the implications on your business

Downsizing is not something business owners like to think about but it can be a necessary part of running a business, especially if you want to cut costs, change direction or survive an economic downturn. It's a strain on any business, but there are several options available to you. This guide discusses three ways to scale down.

  • Downsize your workforce
  • Make redundancies
  • Sell part or all of your business

Downsize your workforce

It is possible to reduce your headcount without resorting to the upset and expense of redundancies. Your workforce will naturally reduce through employees leaving or retiring.  Alternatively, some of your employees may be willing to reduce their working hours or change their position, and others may not have acquired full redundancy rights yet.

  • Freeze your recruitment
  • Negotiate changes to employment contracts

Making redundancies

"Redundancy" has a specific meaning in law. It applies where there is a reduced need for employees to carry out work of a particular type, or at a particular location. Redundancies must meet the legal definition, and dismissals must be handled in line with a strict procedure.  Where an employee has two or more years' service, they are entitled to a redundancy payment, the minimum amount of which is fixed by law. In addition, employees made redundant can claim compensation of up to £63,000 for unfair dismissal in an employment tribunal.

  • Work out the number of redundancies necessary
  • Consult with the union or representatives of the workforce
  • Talk with the individuals concerned before making a final decision

Selling part or all of your business

Selling part of your business can dramatically cut overheads, however it's not without risks. Think how it will look to clients, suppliers and affect your brand. The process itself isn't cost free if you're to get full value and there are employment law issues to be aware of in the transfer of employees.

  • Selling a part of the business can dramatically cut costs
  • Take legal advice in advance
  • Provide the buyer with details of the employees to be transferred

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