Cost-saving strategies: key staffing considerations for employers

Employers are increasingly considering steps to reduce costs, particularly in light of recent increases in employer National Insurance Contributions, the National Minimum Wage and other statutory payments that came into effect in April 2025. This briefing considers what some of these cost saving steps might look like:

1. Reducing headcount: labour costs make up a large proportion of an employer’s overall expenses, making it tempting to cut headcount as a cost-saving measure. While this can be effective, it needs careful planning. Reducing headcount carries legal risk, and any redundancy process must be properly managed to avoid unfair dismissals, protect staff morale and maintain the employer’s reputation. It can also be costly, both in terms of time and finances. For more information, see our redundancy blogs.
2. Restricting recruitment: a recruitment freeze can be a cost-effective way to reduce staff costs and carries fewer legal risks than reducing headcount. While it may not give employers the long-term solution that reducing headcount can achieve, it is undoubtedly a first step to consider when seeking to restrict employee costs.
3. Covering from within: employers can look at existing staff to see whether there is internal capacity to cover staff absence (for example, arising from illness or family leave). When employers might, in the past, have automatically used agency staff or advertised for temporary cover, covering from within can have the effect of utilising spare capacity and, importantly, avoiding the expense of temporary cover costs.
4. Reduce non-employed staff: one quick way of reducing staff costs is to reduce the headcount of staff who are not employees (such as agency staff or self-employed contractors). This approach is less risky than terminating the employment of employees, since non-employees are not protected by the same employment rights, especially protection from unfair dismissal. However, it is important to verify the employment status of individuals before making termination decisions to ensure that the individual is not an employee. Care should also be taken to ensure there are no potential discrimination or whistleblowing risks.
5. Mergers: a merger can result in significant cost savings for employers, particularly by streamlining “back office” functions, such as finance, HR or compliance. From an employment perspective, a merger will usually involve the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) which play a key role in protecting employees’ rights. For instance, there are restrictions on when the new employer can make employees redundant, and the new employer cannot change an employee’s terms and conditions if the reason for the change is the transfer itself.
6. Outsourcings: outsourcing services such as catering, security and maintenance can result in lower costs and can, in some cases, improve the provision. Again, if employees transfer as part of an outsourcing, TUPE is likely to apply.
7. Restructuring: restructuring and redeployment can be a way of streamlining roles and introducing efficiencies, without necessarily resorting to redundancies. However, the process needs careful planning and sensitive consideration, especially where potential contractual changes are proposed. A detailed business case and process plan is advisable to assist employers to manage the potential legal risks. For more information see our article: Making changes to employees' terms and conditions.
8. Flexible staffing solutions: hiring part-time or temporary staff during peak periods can help manage costs and allow organisations to adjust staffing levels based on demand, ensuring that resources are used efficiently.
9. In-house training: offering in-house training and development programs can be more cost-effective than sending staff on external courses. By leveraging the expertise of existing staff to deliver training and mentoring/coaching, organisations can save money and tailor professional development to their specific needs.
10. Lay-offs and short-time working: although not commonly used, lay-offs and short-time working can be a potential way to reduce costs, provided the employee’s employment contract permits them. However, careful consideration should be given to how these measures might be received by employees, as they are typically viewed as a last resort and may lead to dissatisfaction or discontent among staff.

Conclusion

Cost-saving measures present both opportunities and challenges for employers. By carefully considering the employment law implications and taking proactive steps to manage these measures, employers can achieve meaningful cost savings. However, it is crucial to balance these initiatives with the need to maintain employee morale and productivity. Ultimately, a strategic approach to cost-saving measures – underpinned by transparent communication and employee engagement – can foster a collaborative environment and lead to more innovative and effective solutions.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, April 2025