Employment focus: cut backs
With wage bills rising, many salons are looking to cut costs elsewhere. David Wright assesses the options...
Many salons are still reporting difficult trading circumstances. Wage costs have increased due to the new pension requirements and the Living Wage, and further increases in the National Minimum Wage have been announced for October.
Managing the wage bill and maximising efficiency and utilisation remain top priorities. So, what can you do if you see unacceptable white space in columns or need to reduce your wage bill? In some cases you might be lucky and staff might be happy to finish early or even take holiday rather than sitting around without clients, but this is only a temporary solution.
Of course, you can try to develop business via advertising, marketing or new services, but if staff are under-utilised you might have to make decisions about reducing hours or even making redundancies.
Reducing wage costs
Once you reach this position, the best course of action is to meet staff and look for an agreed solution, but in the meeting make it clear you are beginning formal consultations. You could open discussions around the following options and gauge reaction:
• Reduction in hourly rates or commission (this can be temporary)
• Reduction in hours
• Additional unpaid holidays or extended lunch breaks
• Methods of increasing turnover or utilisation by X%
• Potential redundancies.
If some or all staff agree a solution you simply need to amend their contracts. If employees reduce their hours then obviously your holiday pay costs also reduce. It usually isn’t that easy but in my experience the meeting alone has a positive effect in terms of staff upping their performance.
You may need to be flexible to obtain agreement and you might need to meet one employee at a time as they will all have unique circumstances. Remember, when you consult with staff initially you should consult with all the team; you can’t just go direct to the person you would like to move on.
If you can’t reach an agreement you shouldn’t simply reduce hours or pay; this would be a breach of contract. Some may decide to jump ship but they could be the staff you want to keep – there is a real danger that the better performers may become unsettled and look elsewhere. Staff usually recognise there is a real problem and cooperate where they can, as their primary aim is to keep their jobs. In some cases, giving lots of notice of a change can make it more acceptable. For example: “in six months’ time I will stop paying time and a half for overtime”.
Propose all ideas; staff can only say no. For example, each employee agreeing to take two weeks’ unpaid leave in specified quiet months can save a significant amount of money. Staff might be unwilling to drop a day a week but might be OK reducing a day per fortnight or may be comfortable with their commission targets being increased.
If all else fails you must understand that redundancy is a dismissal and the normal dismissal process should be followed. Your selection criteria must be clear and nondiscriminatory. For example, “last in, first out” was traditionally used to select staff for redundancy. This would now probably fall foul of age discrimination legislation as the newest is often youngest. In salons you usually have a number of objective criteria including average daily column income, retail and percentage column utilisation.
The cost of redundancy reflects the employee’s age and length of service. Employees must have two years’ service to claim a redundancy payment, then the costs are:
• Between the age of 16 to 22: half a week’s pay for each full year of service
• Between the age of 22 and 41: one week’s pay per year
• Over the age of 41: one and a half weeks’ pay per year.
• You know how your salon performs during the year. Is a week’s shut down a good idea?
• Do you need to be stricter about when staff take holiday and require them to take a week during quieter months?
• Should you review your commission rates for new staff? I’ve come across salons who pay commission based on gross column income rather than making it net of VAT.
• Filling a 40-hour-a-week vacancy with a 37.5-hour replacement saves you 2.5 hours’ pay per week. Based on £6.70 an hour that is £873 per year.
David Wright is a consultant in all aspects of employment practice and law. He is the main employment law consultant for Habia and provides a personalised support service for UK salons.