Season 4: Episode 4 The real cost of redundancy: What HR teams need to know

Welcome to today's episode of Redundancy Matters.

I'm your host, June Hogan, and thanks so much for joining me today.

So if we've not met before, then I'm a career coach, I'm an

outplacement specialist, and I've got a background in HR, and I've

seen redundancy from all sides.

I've supported people through redundancy with my outplacement work, I've been made

redundant myself a couple of times, and I've also managed redundancy processes.

So I know how much the way the process is handled really matters.

And if you work in HR, then a conversation about redundancies

might start with someone saying, "We need to reduce headcount by 10%,

so can you put a plan together?"

Or it might come up in a leadership team meeting, or maybe

in a discussion with the CFO.

But how do you know whether the savings are really gonna stack up?

What might be missing from that budget, and how long will it take to recover

the cost of making those changes?

So today, I'm joined by a commercial coach, Jo Bailey, and Jo spent 36

years in corporate finance roles, and she now helps leaders make sense of

the numbers and helps you ask some of those questions with confidence.

So in today's chat, we talk about the costs that are easy to

overlook in a redundancy program.

That might be management time, temporary cover, and why the financial impact

carries on long after people have left.

So if you've ever sat in a meeting nodding along while wondering what the

finance terminology actually means, and I've certainly done that, then I hope

this conversation helps to demystify some of that because Jo makes the topic

approachable with practical ideas to help you contribute to the decisions that

affect your organization and its people.

So I hope you enjoy today's discussion.

So let's dive in.

welcome to today's episode of Redundancy Matters, and today I'm

delighted to be joined by Jo Bailey.

So welcome, Jo.

Hello.

Nice to be here

Yes, it's, lovely to be in conversation with you today, and I'm

super excited about the topic 'cause it's something we've not covered before.

Jo is a commercial coach, and she is on a mission to help senior leaders

build commercial confidence and clarity.

We're gonna be digging into some of the financial and commercial aspects

of managing redundancies, and I'm really looking forward to that.

So that was a very brief introduction from me.

So Jo, tell us a bit more about you and your background

So I spent 36 years in, corporate roles, mainly as a

finance business partner, which is where I learnt the skill, or it was

natural, I don't know, to, to explain financial terms to non-finance people.

So in human speak, basically.

When I left corporate, because I'd been there quite a long time, and I've

worked for large organizations like Trusthouse Forte many years ago, and,

Compass Group, and latterly I worked for two Lloyd's syndicate companies,

so quite complex financial information.

But I was always the bridge between finance and the non-finance people,

and that's what I love to do, is love to see the aha moments, when you take

something that we think is simple, not always, but we think is simple, and

then to see people actually understand.

And w- I'm not about making people accountants.

That's not the goal.

It's about helping people to understand more about what the CFO is talking about,

what they talk about in boardrooms, so that you have more confidence

to, to be able to make decisions and be part of those conversations

And having worked in corporate roles myself and been on the

other end of working with a finance business partner and as you say, being

in, those commercial decisions, this sounds like it's something that lots of

people are gonna find super helpful, and just demystifying it, and particularly

when we're talking about managing redundancies, the commercial aspect, is

at the heart of those initial decisions.

So we'll dig into that, a little bit later.

But the podcast is called Redundancy Matters,

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me why redundancy matters to you

Well, I think redundancy is one of the few moments when the

human cost and the financial cost sit in the same room at the same time,

and I think most leaders are trained to deal with one but not the other.

So I think HR leaders will be excellent at the human side, at the conversations,

and the care, and the process.

But ultimately, redundancy, I guess in most organizations, is a commercial

decision with real numbers behind it, and the business case has to justify itself.

So you have to be able to propose what the payback period is, 'cause

you're not gonna do it really if it's gonna cost more money, basically.

So it's about understanding and making sense of what it's gonna

cost, what it's gonna save.

If you only speak one, one side of that language, then you're only speaking about

part of the whole process, and you may not be able to be in the room where the

decisions are being made because y- y- you haven't got full clarity on what

those commercial details talk about.

And I th- I think redundancy is where it shows the commercial fluency gap quite

It highlights it quite a lot, because it's rarely just about the money, but

if you can't speak about the money will end up making the decision for you.

So you have to be able to balance both sides.

That's a really good insight because it depends on the

people who are listening as to at what point you're involved in the

decision to make redundancies.

It can be anything from we're thinking about this, it's come up in a leadership

team meeting, we're exploring all the options, because it should be

a last resort in any situation.

Or it could be the other end of we've decided we need to lose, 10% of the

sales force, so we want to announce next week that's what's happening.

And it can be anything in between as well.

And as you said, having that commercial fluency or that ability

to ask the questions, even if you're presented with it as a kind of we've

decided, so off you go and do the human side, sort the process out."

understanding and being able to ask the questions and being confident is really

important because then that might play in for next time that you can then be part of

that discussion because you can speak that language, as you said at the start there

so when you're working with HR professionals and leaders, and

you're looking to help them increase their commercial awareness,

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the themes that you notice in terms of the things

that you might be focusing on, to help people build that confidence?

I think when we look at HR professionals, they're more

emotionally intelligent than finance people, so are able to explain it to

people and hold a difficult conversation.

But I think a lot of functions speak in their language, be it marketing, be it HR,

be it sales, and they're trying to get the finance, the CFO, the CEO to come to them.

Now, I'm not saying it's right that we go to the finance people, but I

think that's where we have to go.

I think we have to learn the language of the finance people, and then maybe

pull them back so we're meeting in the middle, rather than trying to explain,

to, to a CFO something nice that doesn't have any real substantial justification

financially and expect them to say yes.

Because they're not going to, because they will deal in hard

facts, , it's all about communication, and it's all about language.

So quite often, I mean, I've been asked in the past two or

three weeks what P&L means.

Why would I expect someone to understand all the terminology

that a finance person uses?

Ultimately, businesses are in business to make money, but there's

lots of different parts to that.

And I think, it's about understanding where what decisions you make as a senior

leader, what impact that has on the business, whether it's the P&L or the cash

flow, or the value of the organization.

And if you are not told how that impacts, then you don't know, and

therefore you become quiet in a meeting 'cause you don't really understand.

Then your confidence goes a little bit.

So it's all about building that confidence up by understanding the fundamental

terminology of finance alongside, how you can then use the language to get people

on board with what you're asking for

yeah.,

And as say, it comes back to confidence.

I guess there's also the relationship that, that you have

with m- if you're senior, it's the

Yes

the head of finance or your finance business partner, depending

on what level you're operating at.

And developing those relationships so that you've got the confidence to

ask the questions, and then for th- they've got the patience to then explain

that to you because you're curious

And that's an interesting one as well about, it's

not necessarily patience, but it's the ability to take the finance terms

and explain it in non-finance speak.

Accountants, brilliant, not knocking accountants at all.

But very few will be able to take from that world and put it

into the, into a different world.

And you could call it dumbing down.

It's not dumbing down.

It's just putting it into human speak

And so when you're, faced with a restructure at whatever stage

that might be, hopefully it is in the early stages, as you say, rather

than this is happening, off we go.

In terms of the commercial aspects of that, and, the difference between a

one-off redundancy and a restructure, and some of those considerations, what

would be things that you would want people to understand or be able to ask

questions about if they are in a HR role listening to this and thinking next time

this comes up, I want to be able to be more confident and have the language

to be able to ask these questions"?

And yeah, so a one-off, redundancy is, a cost

removal exercise, isn't it?

Whereas a redundancy structure is you're costing and shaping the future.

So either you're taking a roll out 'cause you've got to save 10%.

I can remember having a conversation with a marketing director once, 'cause

he had to find 10% off of his budget, and literally it was you can lose one

director or two more junior staff.

You it got down to those discussions, and you have to at that stage

take the human part out of it when you're, when you're looking at it

in the hard, cold light of day.

Because people are such a high part of anybody's budget, when you're

making cost savings, you can't always do it from non-people areas.

And that's … So that's a cost saving, whereas I think a restructure,

you're m- it, be it you're closing an office and moving somewhere

else, you're changing the structure.

Because there's so many different costs that you've got to consider,

not just the redundancy cost.

So you need to look at how you model that restructure.

So if I, if I lose this 10 people from here- either I'm going to restructure

it so I'm- I'm putting some- some of those, that all those roles are

going, some are coming back in.

You gotta make sure that you're pricing it right, you're costing it right,

you're looking at the savings right, so that your business case is robust.

And you don't have to be completely accurate, because

you may not know who's going.

But you can make estimates, and estimates that start with a business case, that

you can then adjust as you go along.

Or I've been in cases where redundancy provisions have been made and haven't

been managed as they've gone along, so your provision isn't enough for when

you actually come to the actual process.

I think it's also about, it can be about where it sits in

the profit and loss account.

Because if it's a restructure cost, it's a one-off cost, then that can be classed as

an exceptional item, which means that the accountants just- just do a, move it about

when they're reporting their accounts.

B- so it doesn't impact on the underlying trend of your performance.

Because if you get a peak in your costs, you're gonna…

it- it messes up the trend.

But I think one-off costs would sit within your general costs.

But I would also say that in most cases you wouldn't plan- Well, s- I

suppose if you know that you're going to restructure next year, you might put it

in your plan, but as a high-level item.

So if you've got a project to move people.

So there's lots of different moving parts, basically.

But the point you made about it's not just the cost of the redundancy

exercise, and, it's building, as you say, we might need to recruit specialist

skills, on, on the back of a restructure.

And so it's having that in the round, as it were.

But when you're looking at the pure cost of

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over and above redundancy pay that you would need to consider?

So you got your redundancy pay, you've got,

notice pay, accrued holiday,

the settlement payment, which is your redundancy pay.

Employer NI above the tax-free element.

So above the threshold, employers will pay NI.

Any bonuses that are due that might need to be paid.

Any pension, medical insurance, car, any benefits that if they're on a

12-month notice period, they are going to continue to get that, or you pay it off.

I don't know.

There, there are choices.

I, I have worked where both have happened.

You've got your outplacement fees, legal fees, and there's also something that

you may not be able to calculate, but the time it takes to manage a redundancy

program from HR teams that are involved in it, managers that are involved in

it, how much of their time is taken up.

So their productivity time changes, doesn't it, as you go through, It's BAU.

It's paid as BAU, but it is a cost of redundancy.,

If you're spending, as an HR manager, every day having conversations with

employees throughout that process, as well as all the managing of all the

admin, behind it, that could be a huge cost and a huge impact on productivity

And that's where, voluntary redundancy can come into the process in

terms of, as a HR professional, if you're putting forward some options, if you've

got voluntary redundancy on the table, and then, and people, enough people accept

it, the right people accept it, then you'd use a settlement agreement, you'd get

all that tied up, and then you wouldn't have to then spend, you say, the next two

weeks, three weeks, month, whatever it is in terms of, the length of the exercise.

So that's an interesting one just to put into the mix, because some organizations

don't want to offer voluntary redundancy 'cause they think the wrong people

apply or, they just don't think it's something that they want to do.

They think they'll have to let people go that they don't want to let go,

and of course, , there's other ways of managing that and w- I think there's

a whole, podcast on that anyway.

But, that's interesting what you said there about the amount of time versus if

you were to use that, use a settlement agreement, it would save some of that.

So it's interesting how you can bring all of that into the cost modeling.

I think you can.

And whilst you may not be able to quantify all of it, we can make estimates.

And it, so it's just a, it's a placeholder almost.

And I think it's like having a checklist.

So having all of these things down, you may not fill them all in, but if you

haven't expressed it as an issue, people aren't even going to think about it.

And so I think voluntary, offering voluntary redundancy is a good way of

maybe saving some of the, the admin costs, but also when you said that,

I was thinking about the productivity of the people that are left.

So if you're going down an enforced redundancy route, then I guarantee

you that the productivity of people that are left will go down.

Maybe not permanently, but it will go down during the process.

So that's something else that maybe we should consider, is during the process

your productivity's gonna be less 'cause people are worried about whether it's

gonna be them or it's gonna be someone else or, even beforehand when there's

talks about, what may or may not happen.

Uh, so it's also thinking about that as a concept, maybe not as a cost specifically,

but it is a cost to the organization.

Even if we can't monetize it, it's a cost to the organization.

, June Hogan: And h- being able to have those robust discussions around all

of these different elements I think is important because if you are looking

to reduce one head and that person is maybe, , paid £40,000 and yet it's

gonna cost all of this ex- they've been there for, 20 years or whatever.

, You're putting it all into the mix, aren't you, in terms of the, the

impact and just making sure that it's absolutely the right thing to do

And I think it's, , is that role really redundant?

Is what they're doing really redundant?

But there may be some tasks that need to be taken on by others.

So there's the lack of reduced productivity, but then there's also the

impact on those left behind if there is still some of that work to be done

Yeah, absolutely.

And so we've talked about costs.

How do you account for the savings then?

Because, if you're taking out a role, that person was, paid £40,000.

You've grossed up what it's gonna cost to make that role redundant.

How do you account for the, the savings then going forward?

'Cause that's an interesting one, isn't it, in terms of we're gonna, we're

gonna have to say w- we're reducing by one head 10%, whatever the figure is.

This is how much redundancy's gonna cost, but it's, this is the rationale because

we're gonna save this going forward.

So then I can visualize it in my head, ' 'cause if you had…

If you worked out like a, an annual plan, whether it goes across or

down the page, is you've got your cost that you pay, say in January.

Let's say January to December.

But then you're gonna save that salary every month, so you

then slot in the salary saving.

It's not just the salary saving.

So obviously all the employer on-costs, it's the benefits, it's, all of those

sorts of things that you will save that we've already talked about.

But on top of that, you might save on mobile phones.

Peanuts, but it's still, it's still a cost.

Travel, if they were a sales manager who traveled to America

four times a year, you're saving on some of those travel costs.

you're saving on any training costs that they may have incurred.

Again, it's a hidden cost that you may or may not need to look at.

Computer cost savings, but then if it's a large, redundancy plan, you might then

reduce your subscription to Microsoft.

, You, that comes in levels, so you might make a saving there.

Office cost savings.

If you're closing an office, , you're going to be saving

the costs from that office.

Now, what are those?

But then have you…

I- is your lease…

On the other side is, and this isn't necessarily for HR to calculate,

but it's something to consider.

Anything that's where that person is physically sitting-

you might make a saving.

I mean, if it's one person you're not, because it's just a desk in a office

or wherever they work from nowadays.

But it's thinking about anything that's linked to the person.

But what you have to consider is that your cost goes out,

your savings come afterwards.

So you also need to think about payback period, which is, , so I've saved £40,000.

When do my savings get to £40,000?

And that is my payback period.

So it could be a year before I pay that back, but it's in the long term.

It, it's a benefit.

so it is looking at that payback, 'cause if it's not gonna pay back within, say,

18 months, what's the point in doing it?

If it's gonna cost you more than it's gonna save you,

what's the point in doing it?

Yeah.

That's really interesting in terms of not just thinking about in, if

you're in HR, for example, , I'm gonna look at the costs, go through

them all like you've just described.

I've got the spreadsheet, I've got the timing.

This is how it's gonna run.

People will leave on this date.

The redundant payments will be made on this date, and

kind of that's the end of it.

But then, and it might be that your finance business partner

then picks this up in terms of the savings and that kind of

Yes

you said at the start, having the language and the confidence to then

say, "Okay, so if we look at the fact that this exercise is gonna cost us

£250,000, let's look at," as you quite rightly say, "at what point will we

be- will we benefit from the savings?"

Now, some organizations that I've worked with, they have to make the redundancies

because their funding's running out.

But in other organizations where there's, it's more of a steady state

and as you say, they're looking to close an office or maybe they're looking to

reduce sales force 'cause sales have decreased, whatever it might be, it's

making sure, as you say, that it's the right decision, but it is gonna be

financially the right decision as well.

Are there any things in your experience that sometimes get overlooked when,

redundancies are being budgeted for?

I think it's costs that incur after the exits have happened.

So there's temporary cover.

There's, recruitment for roles, that you can't, that in six months' time you

thought, "Oh, I shouldn't have done that."

I don't know what the timeframe is legally, but then you go back and you

have to replace that person, and then it's, that's cost you as well, hasn't it?

It's double cost you in effect.

There's the productivity dip that we spoke about earlier.

May not be quantifiable, but it's important to note, it's a hidden cost.

So I think it's after the exits, and it's also in the back of your mind knowing that

you may incur legal costs from claims.

And you can't plan for those, but you have to be aware of those.

So you also have to be aware of the cashflow that an org- like you s- you

just mentioned about organizations that have had to go through a redundancy

program 'cause the funding is being cut.

But if you haven't got that cashflow, then you gotta make sure you've got

the cashflow to do the redundancies, in order to then continue moving forward

Yeah.

And, because, , it is a significant cost.

Even if it's, , one person, it's still something, as you said at the start, you

might not have budgeted for, and you've gotta make sure that's, that you've got

that in the, in the forecast, in the planning, as you say, and importantly,

that you've got the cash to pay for it.

And yes, the idea of, recruiting again, that isn't something,

that you want to contemplate.

But I have worked with organizations who, have put off making redundancies

as long as they possibly could, . That one organization I worked with, they

said, "When the government changes, we'll probably have to then start recruiting,"

but they just had no alternative, 'cause I guess they were running out of

cash, so they had to make redundancies.

And they knew that in probably six, seven, eight months' time they'd

have to start recruiting again, but they had no choice at that point.

So there can be different reasons.

Or it might be that you don't need these particular set of skills,

but we actually need a different set of skills, and that, that's a

different kind of conversation then.

Yeah

recruitment

I think yes, and I think as you adapt in an

organization, that will happen.

If I just talk about the offshoring of a team, that didn't go particularly well.

So I think that 50 people were being made redundant from the UK

to be replaced by offshore people.

By the end of it, I think maybe 20 were made redundant, so the business case

for it was for 50 to be made redundant.

The costs of the offshore weren't properly calculated, so it just cost so

much more than it needed to have done.

And then all the training, the cross-training, 'cause in that case,

the roles still exist, don't they?

They just exist somewhere else.

Yeah.

And so that's a, that to me was a prime example

of where we hadn't planned.

Not everybody, not all the right people were in the right room at

the same time, and that is critical

Yeah.

Absolutely.

That, that notion of that it'll be easy, we'll just take these

50 roles and we'll offshore them.

But there's so much more that goes on in that in terms of it's more than just the

cost of making those people redundant because they won't want to relocate

so yeah, I think we started it there, didn't we, in terms of just being in

the room or getting yourself into the room or asking the questions or just

being somebody who is curious, who wants to know more about those sorts of, the

commercial aspects, rather than thinking I work with, in the people function,

so just do the people function really well," which of course is fabulous.

But , having those connections.

And so just thinking about any of the big challenges i- your perspective when

you've been working in finance roles or, what, that you've seen from the

other side of managing the financials.

Because as you say, you can't be totally accurate with this because you don't

know who's actually gonna be going

Yeah

of the program, and there could be hidden costs that

come out, like you said there, about training and the impact of offshoring.

What are some of the challenges that you've noticed?

I think lack of proper planning at the start.

Planning is critical, and it- planning for what you don't know as well as what

you do know is absolutely critical, so that you do know that something might

come up that , you may not know what the cost is gonna be yet, but planning

out the whole process so you can see how it's going to work from stage to stage.

And then you cost it, but you look at it regularly.

If you don't look at that plan regularly as to where people are, once you start

to know who's going, you can start to plug that into your calculations.

Your plan might be the worst-case scenario, and then you…

i'm an accountant, I'm a pessimist, so you look for the worst case,

then it can only get better.

But if you make…

A decision is made on the worst case, then, you- you're gonna be

in a good position, aren't you?

, Timing mismatches, I think is also something to consider, is where

we spoke about the cost lands, but then, the savings come later.

So I think that's a challenge, and that's a challenge to get into your head

how that works, and just understanding the timings and where they are.

I think there's a risk in getting the process wrong.

Therefore, if you don't run the process correctly, you are then liable

for tribunal costs, legal costs.

So it's, that's the HR side, but it's making sure the process , is working.

And I think also, making sure you identify all the costs, whatever they may be, and

all the savings, but through a checklist

And I guess if you're doing this for the first time, , you

might, come to one of the sessions that we run on a monthly basis just

to help people managing redundancies.

Maybe you're gonna talk to colleagues,

or maybe you're just using AI and Google and, , whatever that

might be, or looking at CIPD

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So you're gathering all this information.

So doing it for the first time is hard, but once you've done it once, then you're

gonna have, , you'll have that checklist.

You'll have thought, "Actually, yeah, we forgot about X, Y, Z," and you'll

build this sort of library of resources.

So from your perspective, I know, , you're looking , to work with people

to improve their commercial confidence.

Tell us a bit about what you do and how you might be able to help

someone in this situation who's maybe managing a redundancy for the first

time, wants to get the financials right, or someone who just wants

to become a bit more commercially confident in these sorts of situations.

I produce a regular newsletter, so a weekly newsletter

which takes a financial term and puts it into human speak.

then I'm- I've got a series of master classes, monthly master classes and

that's for general understanding of, the financial terms, the P&L, the balance

sheet, what do they mean, moving on to, the final one is influencing with data.

So how do I use that data?

So it's running through a process.

So there's master classes, there's the newsletter.

I also have decoders for a redundancy decoder, which will actually

talk about what we've talked about, but in a bit more detail.

So it takes you through the phases of redundancy before, during, and after, and

the s- sort of some of the questions that you should ask , and some of the points

to look out for, which I think will be…

and that would be a, a, a free resource for people.

And also, I've got a redundancy calculator.

So if , you can calculate one-offs on the government website, but if you've

got a whole collection of redundancies, rather than sitting and plugging all

the information in every time on a spreadsheet, you can plug it in and

it'll be, it won't be 100% accurate, but it gives you a damn good, idea of what

the redundancy is gonna cost, and it'll allow you to put in extra things that,

that the government website wouldn't.

That sounds fabulous.

And all the links to the master classes, how to get on your, join your

newsletter, and also to get a download of, the decoder, and the checklist.

We'll put all of that.

That'll be, in the show notes.

And for anyone who's listening who's also on my mailing list,

then that'll come out as well.

So you'll get that in your inbox.

So that sounds fantastic, Jo.

And yeah, just, I'm just, thinking back to my corporate days and thinking I

would have loved to have had someone like you to help me understand some

of this stuff, because I did a lot of just nodding and smiling, thinking,

"Not really sure I understand that."

Ooo

I should have had the confidence to ask the question, but maybe

I didn't wanna ask the question, because if the answer came back and I still

didn't understand it so would I then be thinking, "What will people think of me?

Why don't I understand this?

Is there something wrong with me?"

And I think it is, it's not you, it's the explanation,

and it's how people learn as well.

So I've got a client who learns visually, so we'll look at things

visually rather than by words.

So my decoders currently are written words, but then we can start to look at

things visually to help and understand how different people learn in different

ways, and I think that's really important.

And that's part of my aha moment is, well, we don't all learn the same way.

We don't all communicate the same way.

It can be scary to hold your hand up i- particularly if you've

got to a senior level, if people think that you know everything.

You're in a boardroom, probably one of very few women in a boardroom, and

you say, "Can you explain that to me?"

But then I've had men that I've helped who also daren't put their

hand up in a boardroom because they think they should know.

But why should you know if , no one's explained the language to you?

So all of this sounds really helpful.

So I'm so glad that we got to talk about this because it's a topic

that we've not covered before.

I've learnt loads just from that conversation.

And I hope that people listening to it will, have learnt loads as well.

So thank you so much, Jo.

And, if you wanna get in touch with Jo and find out more, then, do have

a look at the link in the show notes.

And, yeah, so thanks so much, Jo.

It's been a really enjoyable conversation.

Thank you.

Thank you so much for listening to the Redundancy Matters podcast.

I hope you found today's episode helpful.

It would mean a lot to me if you would follow rate and review this

podcast wherever you listen to your podcasts, as this helps it reach more

people who are managing redundancies.

Let me know what you thought, and if you have ideas for future

episodes, I'd love to hear from you.

You can find me on LinkedIn, June Hogan, and get in touch via my

website, wildwood coaching.co.uk,

where you'll also find more resources to help you manage redundancies.

I hope you'll join me again soon for the next episode of Redundancy Matters.