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Cutting Costs while remaining legally compliant

When times are tough it really brings to the fore the importance of having robust human resource policies and procedures.  This starts with legislative compliance which, when done correctly, can have considerable cost savings for your business. Problems often arise when there is either no contract of employment or a very poor

contract. During the recession, company have a big desire to simply cut jobs and get rid of people.  Redundancy is still a strong tool these days, but it’s not the only tool, and businesses are looking at other options that would allow them to retain their talent. There are a number of different options available to reducing staff cost.  However, employers must remain focused on legal compliant and understand that when cost cutting it is not conducted properly, the consequences of non-compliance will fall on them.

Reduced Working Week

If you are in a situation where you need to cut costs and there is not enough work for all employees but at the same time you do not wish to go down the route of redundancy, it is possible to consider a reduced working week for your employees. A reduced working week is if the employee is still working more than 50% of their normal working week. However, unless you have written into the employees terms and conditions that they may be placed on a reduced working week, you must get their agreement. However when the reality of the situation is explained to the employees and when faced with redundancy as an alternative, employees generally agree to the temporary reduction in an effort to keep the business going.  If the employee does not agree to the reduction you cannot enforce the reduced hours without facing the risk of Breach of Contract claims or even constructive dismissal.

Salary/Pay Cuts

It is possible to consider introducing pay cuts within your organisation. However it is important to note that this can only be done with the employees’ agreement as to do so without their agreement you are in effect breaching their terms and conditions. If you hold a consultation meeting with employees to discuss the gravity of the situation you are in and how you need to make changes to maintain a viable business, employees are often more understanding than we may expect and may agree to the change. It helps if they realise that the same sacrifices are being made by senior management as well and that everyone is in it together. If employees agree to the temporary pay cut it is important that you get this agreement in writing. Unfortunately, if the employee(s) do not agree to the pay cut, you cannot enforce it without facing risks such as breach of contract, Payment of Wages claims and even constructive dismissal. This is still the case even if most of the organisation has agreed and only a small minority have refused to accept the paycut. Furthermore, these select few who have disagreed with the paycut, cannot be those targeted for redundancy as this would not be a transparent or fair selection and redundancy is not specific to an individual rather it is the role that is made redundant.

What is lay-off?

A lay-off situation arises where your employer is unable to provide work for an employee in their normal capacity, but believes this to be a temporary situation and gives the employee notification of the lay off before the work finishes. Employees are laid off for a specified period of time, until trading conditions improve, or until the reasons behind the lay-off no longer exist. 

Lay-off can be a period where no work is performed or the employees may work one week on, one week off.  Other patterns could include working three out of four weeks or one in each four week period.

Right to lay-off employees

A lay-off is a temporary suspension of a contract during which an employee receives no work and, more importantly, receives no payment from the employer.  The employer has no right in law to lay-off employees for whatever reason unless this is provided for in the contract of employment. If the employer has not reserved the right to lay-off in the contract of employment, then the employee must agree to and accept the lay-off. You can get the employee to accept this as an express term in their contract once the sign in agreement. An employee who refuses to accept lay-off and is not contractually bound to accept it may leave the employer with no alternative but to make him/her redundant if there is no other way to cut costs withing the business.

What is short-time?

A short-time situation arises where, due to a reduction in the amount of work to be done, your pay or hours are less than half the normal weekly amount. This must be a temporary situation and your employer must notify you before the reduction starts.  Short-time working is defined under the Redundancy Payments Acts as:

‘where an employee’s working week decreases to less than half of his/her normal weekly hours or his/her pay is less than half of his/her normal take home pay; and the situation is not considered to be permanent and advance notice is given.’ 

As with lay off, the right to place an employee on short-time must be provided for in their terms and conditions. If you do not have this provision in their terms and conditions you must either get the employees agreement to the short time in writing or you will have to look at alternative cost cutting mesaures which may include redundancy.

Selection of employees

When selecting employees for lay off or short-time working, an employer should apply the same standard of selection criteria as for redundancy. The criteria should be reasonable and applied in a fair manner. For example, the custom and practice in the workplace may be last in, first out or the contract of employment may set out criteria for selection. Under employment equality legislation, the selection must not discriminate against employees on any of the following 9 grounds: gender, marital status, family status, age, disability, religious belief, race, sexual orientation or membership of the Traveler community. If you require assistance with the selection, you should contact the 24 Hour Advice Line on 01 8555050.

Right to a redundancy payment

Lay-off and short-time are viewed as being temporary situations, so employers should be aware that if either the lay-off or short-time working lasts for a certain length of time, the employee may be entitled to seek a redundancy payment.

If a lay-off or short-time situation exists (or a combination of both) and has continued for either at least 4 consecutive weeks or more, or for 6 broken weeks in the last 13 weeks, the employee may give his/her employer a notice in writing of their intention to claim redundancy.

Any time after either of these situations has occurred, the employee could decide to claim redundancy. The claim must be made on form RP9.  Once the employer receives this form he/she has two options:

  • accept it and pay the redundancy lump sum thereby accepting that theres is a termination of employment due to there being no work
  • give counter notice within seven days to the employee contesting their claim for redundancy


Counter notice

An employer must give written counter notice within seven days of receipt of the employee’s notice. By issuing a counter notice, the employer is effectively promising that not later than four weeks after the date the employee notified them of their intention to claim redundancy the employer will be in a position to provide guaranteed work lasting 13 consecutive weeks.  If this does not happen, the counter notice is invalid  and the employee is entitled to a redundancy payment. The employee is entitled to statutory redundancy only.  He/she is not entitled to notice payment as s/he is the party terminating the employment.

What is redundancy?

Redundancy occurs when an employee loses their job due to the closure of a business or a reduction of the workforce.

Under the terms of the Redundancy Payments Acts 1967 – 2003 an employee being dismissed for redundancy reasons must be given at least two weeks’ notice before the proposed date of dismissal. However, employers must also comply with the notice requirements under the Minimum Notice and Terms of Employment Acts 1973 – 2001. If the length of notice owing to the employee under this Act exceeds the two weeks required under the Redundancy Acts, the employee must get the longer period of notice.

Moreover, a longer period of notice may be required under the contract of employment which is legally binding. Again if this notice period exceeds the notice periods under the Redundancy Acts or the Minimum Notice Act, the employee must get this contractual period of notice.

The selection criteria as previously mentioned should be reasonable and applied in a fair manner and should be discussed with employees affected.

Notice of redundancy is given on form RP50 and notice must be given to the employee at least two weeks before the proposed dismissal takes effect. Where the contract of employment or the Minimum Notice and Terms of Employment Information Act, 1994 require a longer period of notice, the RP50 may be issued on the commencement of the longer period of notice.

Consultation with the employees representatives in cases of Collective Redundancies must take place at least 30 days before the first dismissal takes place.

Where it is proposed to carry out collective redundancies, the Minister for Trade, Enterprise and Employment must receive written notice at the earliest opportunity and at least 30 days before the first dismissal takes place.

Time Off to Look for Work

The Redundancy Payments Act 1979 provides that, during the two weeks of redundancy notice period, an employee may have reasonable time off with pay to look for alternative employment. The company, may if it so wishes, request the employees to furnish it with evidence of arrangements made for these purposes provided that it is not detrimental to the employees interest to do so. 

An employee who is declared redundant is entitled to a lump sum payment once they have 104 weeks continuous service as follows:

  • Two weeks remuneration for each year of continuous and reckonable service
  • In addition, the equivalent of one weeks normal remuneration considered a bonus week

For the purposes of redundancy, the statutory ceiling of earnings since 1 January 2005 is €600 per week.

Should you wish to discuss individual circumstances, you should contact our 24 Hour Advice Line for further assistance or visit us at: Peninsula Ireland

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