“Redundancy is one of the few moments when the human cost and the financial cost sit in the same room at the same time.” Jo Bailey said this when we spoke on the Redundancy Matters podcast about redundancy costs and the financial decisions behind them.
Jo is a commercial coach who helps senior leaders build commercial confidence and clarity. She spent 36 years in corporate roles, mainly as a finance business partner, and said she “was always the bridge between finance and non-finance people”. We talked about the questions HR can ask to understand the figures and take part in those decisions.
What should HR know about the business case for redundancy?
Jo said most leaders are trained to deal with one side of redundancy but not the other. HR leaders are often excellent at the human side like the conversations, care and process. Redundancy is also a commercial decision, with real numbers behind it. The business case for redundancy needs to explain what it will cost, what it will save and the expected payback period.
“If you only speak one side of that language,” Jo said, “then you’re only speaking about part of the whole process.” She isn’t asking HR to become accountants. She wants people to understand more of what the CFO is talking about, so they can take part in decisions and feel more confident in those conversations.
The point at which HR is brought into a redundancy can vary. Sometimes leaders are still exploring options; at other times, the decision has been made and HR is asked to manage the people side. I told Jo that I’d worked in corporate roles myself and had been on the other end of working with a finance business partner. I also said that being able to ask questions can help HR take part in those discussions next time.
Wildwood’s broader guide to preparing for redundancies covers the wider planning questions.
What should you include in redundancy costs beyond redundancy pay?
The payment is only one part of the cost of redundancy. Jo listed other costs that may need to be included:
- Notice pay and accrued holiday
- Employer National Insurance above the tax-free threshold and any bonuses due
- Pension, medical insurance, a car and other benefits during a notice period or the cost of paying them off
- Outplacement and legal fees
- The time HR and managers spend on conversations and administration
That last item can be hard to calculate. HR and managers are still paid as usual, Jo explained, but “their productivity time changes” during the process. If they are spending a lot of time on employee conversations and administration, that affects the time they have for other work.
We also talked about voluntary redundancy. I said that if enough of the right people apply, it may reduce some of the administration involved. Jo agreed it could save admin time, then raised the effect on people who stay. In an enforced redundancy process, she said, their productivity may fall. It may not be possible to put a precise figure on that, but she sees it as a cost to the organisation.
When will the savings arrive, and when is the payback?
Jo suggested putting costs and savings into a plan across the year. If a redundancy cost is paid in January, for example, the salary saving can be added month by month afterwards. The saving may also include employer on-costs and benefits.
There may be other costs linked to a role. Jo mentioned mobile phones, travel, training, computers, software subscriptions and office costs. Some savings depend on what happens to the work. If someone else still needs to travel, for instance, that cost may not disappear.
Jo explained the payback period using £40,000 as an example: when do the savings add up to £40,000? She also asked whether it makes sense to go ahead if it won’t pay back within, say, 18 months. That was her example, not a general rule.
Cash flow can make the timing difficult. I’ve worked with organisations that had to make redundancies because their funding was running out, even though they thought they might need to recruit again six, seven or eight months later. They had no choice at the time, but it shows why the cost and the expected savings need to be looked at together.
What might you need to pay for after people leave?
Jo pointed to costs that can arise after the exits. There may be temporary cover, or recruitment later if the organisation realises it still needs a role or particular skills. Productivity may dip, legal costs may arise and cash flow needs to be considered. The money for the redundancy programme has to be available before future savings come through.
Jo gave an example of a business moving work offshore. She recalled that the plan was to make around 50 people redundant in the UK, but “by the end of it, I think maybe 20 were made redundant.” The offshore costs “weren’t properly calculated”, and cross-training was needed because the roles still existed, just somewhere else.
Jo called it “a prime example of where we hadn’t planned”. Not all the right people were in the room at the same time, she said.
How do you plan for costs you don’t yet know?
You may not know exactly who will leave or what every cost will be at the start. Jo’s advice was to make estimates, then review them as the plan develops. As decisions become clearer, you can update the calculations. She had also seen redundancy provisions made without being managed as the process continued, leaving too little provision for the actual costs.
“Planning for what you don’t know as well as what you do know is absolutely critical,” Jo said. She tends to plan for the worst case: “I’m an accountant, I’m a pessimist, so you look for the worst case, then it can only get better.”
Jo also suggested using a checklist. You may not be able to fill in every figure, but if a cost or risk hasn’t been raised, people may not think to include it. Before the discussion, HR could ask:
- Which costs are included beyond redundancy pay?
- When are we expecting to pay them, and when should the savings begin?
- Could we need temporary cover, recruitment or cross-training later?
- Which estimates should we update as decisions become clearer?
- Are the right people involved in checking the figures?
Towards the end of our conversation, I told Jo I would have loved to have had someone like her to help me understand this when I was in corporate roles. I admitted: “I did a lot of just nodding and smiling, thinking, ‘Not really sure I understand that.’” Her response was: “It’s not you, it’s the explanation.”
If you’re planning redundancies and would like to discuss the support available for people affected, get in touch with Wildwood.
About the Guest
Jo Bailey is a commercial coach who helps senior leaders build commercial confidence and clarity. She spent 36 years in corporate roles, mainly as a finance business partner. Jo also has a Redundancy Decoder for anyone facing redundancy who wants to make sense of the financial side.
Discover more content like this in our Redundancy Matters podcast, or wherever you listen to your podcasts.
If you’d like to keep in touch to receive regular content on Redundancy, Outplacement, and to be notified when our podcast episodes land you can join our mailing list.
And if you want to find out more about our services you can get in touch to discuss how we could support you with our Outplacement Support Services.