Why retrenchment is not always the answer in tough times

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As many small businesses feel the economic heat while grappling to maintain turnover and profitability, it is likely that many business owners consider or even implement retrenchments. Yet there are a number of factors to consider before taking such drastic action.

This is according to Kgomotso Ramoenyane, executive general manager of human resources at South African risk finance firm Business Partners, who says that during financially challenging periods, human resources is one of the departments that often receives the most attention.

However, this does not necessarily have to be the case.

“When faced with shrinking revenue figures, small business owners should firstly review their cash flow management and explore ways in which to optimise it,” Ramoenyane says.

“All options, such as improving a business’ service offering through implementation of innovative ideas, refining and improving customer service to retain customers, and cutting overhead expenses, should be thoroughly researched before considering the retrenchment option.”

Here are five things to do in such a situation, according to Ramoenyane.

Communicate

“Business owners need to be transparent and continually keep their staff informed. If a business is not doing well financially, come clean about it. If discussed in the right forum, with proposed solutions, staff may be more inclined to support the business in its turnaround strategy,” she says.

Discuss options

Before making any changes to salary packages or fringe benefits, business owners should discuss all options with staff.

“If part of the strategy is to contain costs in the form of not giving bonuses or annual increases until the performance of the business turns around, discuss this with staff. Similarly, discuss the possibility of decreasing salaries. During this process, it is vital that staff input be carefully considered and their permission and buy in is obtained,” says Ramoenyane.

Consider all options

“If reducing salary expenses is a viable option for the business, consider the option of reducing work hours for staff. For example, staff could work a three or four day week instead of a five day week, depending on the nature of the business.”

Stop all current recruitment

“Before employing new staff members, a business must first focus on retaining its current staff and looking after their needs first, especially amid tough financial times,” says Ramoenyane.

Early retirement

Finally, consider asking if any employees would willingly opt for early retirement.

Ramoenyane says regrettably some entrepreneurs may find retrenchments to be the only solution for rescuing a cash-strapped business and could be the difference between a couple of job losses and the closure of the business. If this point is reached, she says the process should be executed with caution, and advises the following:

Ensure reasons given for retrenchment are compliant with labour law

“The Labour Relations Act makes provision for employers to dismiss employees based on operational requirements of which economic considerations are one of the permissible reasons. However, employers need to note that the onus to prove this lies with them,” Ramoenyane says.

Consult with staff members in person

Business owners should deal on a face-to-face basis with staff being retrenched.

Ramoenyane says this should be “followed by complete, accurate written information detailing the reasons, the process to follow, and how many staff members will be affected”.

Ensure staff are supported during the entire retrenchment process

This includes both the staff being retrenched, as well as those remaining.

“This includes allowing staff time off to attend job interviews, assistance with CV writing and references, and the general care of staff morale in the office throughout the process,” she says.

Document everything

“One of the biggest mistakes employers make is to handle retrenchments without accurately documenting communication. All communication involving retrenchment of staff must be well documented at all times,” says Ramoenyane.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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