12 Ways to Cut HR Costs: Part 6 - Voluntary Exit Package

By Daniel Pollard - 26 October 2020

UK employers consulted with staff on nearly half a million redundancies during the pandemic - roughly 1.5% of the working population. The true number will have been much higher as small-scale redundancies are not captured by government statistics. The furlough scheme will have given many employers an opportunity to pause but as the scheme comes to an end, employers face some tough choices.   

Over recent months we have seen a huge amount of creativity from our clients in finding ways to minimise redundancies. Over the next couple of weeks we will share 12 possible strategies adopted by our clients and some thoughts of our own to help reduce cost without compulsory lay-offs.

6. Voluntary Exit Package

Ok, we hooked you in on the basis that this article wasn’t about redundancies (i.e. reductions in force). But hear us out! 

To our mind, there is a huge difference between compulsory and voluntary redundancies, from a cultural, practical and legal perspective. 

Considering some of the concerns:

• Typically, “voluntary redundancy” conjurers up an image of a generous enhanced redundancy package which is unpalatable in the current environment. But this does not need to be the case and we have seen clients offer (and get take up on) voluntary redundancies at the statutory minimum over recent months.
• The other concern that employers have with “voluntary redundancy” is the risk of losing their most talented staff who are most likely to have other options. These risks can be mitigated both by the lack of other options in the current recruitment market and by a clear requirement that applications will be determined at the employer’s absolute discretion. 
• Finally, there is a concern that making redundancies, even on a voluntary basis, sends the wrong signals to the workforce, customers and the market. This can be allayed to an extent by good communications and moving away from the use of the “r” word. Voluntary exit package?

The biggest attraction though is that redundancy payments of up to £30,000 can usually be free of UK income taxes. That means that it is significantly less expensive to pay a months’ severance than a months' wages.

Some employers are offering voluntary redundancy also in conjunction with preferential re-employment policies. Provided the redundancy is not a “sham” there are no legal issues with policies that favour former staff but advice should be taken on the detail. These policies have the great advantage for employers of being able to re-hire skilled staff and to employees to quickly reintegrate with the workforce. 

For all 12 ways to reduce HR costs without redundancies click here.