Retrenchment: not always the solution to survive in an economic downturn

Mirroring the economic strain that many South African households are experiencing, many local businesses too are feeling the economic ‘heat’ as owners grapple to maintain turnover and profitability. During this time, many business owners consider or even implement retrenchments, but 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 Business Partners Limited (BUSINESS/PARTNERS), who says that during financially challenging periods, human resources is one of the departments that often receives the most attention.

She points to June 2016 quarterly employment statistics, released by Statistics SA this month, which reported a decrease of 67 000 employees – when compared to March 2016. “Times are extremely tough and quarterly employment losses were observed in all industries apart from electricity and construction industries.

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

Ramoenyane also advises the following:

1. 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.
2. Discuss options: Before making any changes to salary packages or fringe benefits, all options must be discussed 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.  
3. 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.
4. 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.
5. Early retirement: Finally, consider asking if any employees would willingly opt for early retirement.

Regrettably, for some businesses, retrenchments may 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, Ramoenyane says that the process should be executed with caution and advises the following:

1. Ensure that the reasons given for retrenchment are compliant with Labour Law for example, 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.
2. Consult with staff members in person, followed by complete, accurate written information detailing the reasons, the process to follow, and how many staff members will be affected.
3. Business owners must ensure they support all staff during the entire retrenchment process, 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.
4. 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.