Redundancy: A Costly Business


One of the reasons why employers may have been more hesitant about going ahead with widespread redundancies in this downturn is that it can be a costly business.

According to the Chartered Institute of Personnel and Development, the immediate financial cost of redundancy can reach over £16,000 per employee laid off.

The Institute says employers should view redundancies as a last resort and is urging them to retain employees rather than downsizing and risking long-term damage to their businesses.

John Philpott, the CIPD’s Chief Economist said;

“Businesses are under huge pressure right now and restructuring is a fact of economic life that can never be ruled out. 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. This is particularly true if redundancies are an employer’s first resort in difficult times and have to be quickly reversed by renewed hiring when economic conditions improve.

“While the average direct cost to employers of making redundancies can reach £16,375, on top of this are hidden or indirect costs resulting from the effect of redundancy on survivor employees, such as higher labour turnover and a fall in staff productivity.

“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. 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.”

In its new ‘Barometer of HR Trends And Prospects 2009’ the CIPD cautions that in the current situation, feelings of job insecurity may be particularly acute for the Baby Boomer generation. They remember the big culls of jobs for older workers in the 1980s and 1990s but may be less willing, or less financially able than their forebears to contemplate agreeing to ‘early retirement’. 


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