Redundancy a Costly Solution to Recession woes


Redundancy is not necessarily the best money–saving solution for recession–hit firms — costing businesses up to £16,375 per employee laid off, the Chartered Institute of Personnel and Development(CIPD) has claimed.


The direct cost of redundancies for employers is typically between £10,575 and £16,375 per employee laid off — this includes redundancy payments, the need to create new job positions and recruiting for these roles.

This calculation comes amid predictions that many businesses will be forced to make redundancies this year in an attempt to cut costs and survive the recession. CIPD chief economist John Philpott said:

“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,”

“Our cost predictions are likely to be a conservative estimate and provide a hard business case for why redundancies should be a last resort in the downturn. The redundancy cost calculated applies to many small businesses. However, some smaller employers offer less generous redundancy payments, and in these cases the total cost would be less.” he added.

They added that figures do not include the indirect costs of redundancies, which can include a fall in employee productivity due to low morale, and resignations from other staff members.

Recent research from Orange revealed that 43% of small firms expect to make staff cuts this year, 28% don’t expect to make cuts and 9% plan to use more flexible working practices.

“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.” Philpott added.

For more information about redundancy and employees’ redundancy rights, read our Redundancy article

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