It is possible to reduce staff costs through the benefits you offer and you may want to consider replacing taxable salary with tax-free or national insurance free benefits. Typical examples are childcare vouchers, pension contributions, car park facilities (at or near the place of work) or a staff canteen (which must be available to all).

A salary sacrifice system can save tax and national insurance costs or you might consider introducing a flexible benefits system. These schemes can pay for themselves in the first year and result in a remuneration package which has more value to the employee because it meets his/her particular needs. The scheme can save money because of the tax and NI savings.

You need to ensure that you are getting the best rate for staff benefits such as life and other insurance-based benefits, especially in light of recent age discrimination legislation. With an older workforce, permanent health insurance and private medical insurance are particularly expensive.

Reducing your payroll bill

More progressive employers have implemented the following measures to save money on staff costs without losing the talent in their business.

1. Robust performance management - be very clear about your expectations and manage poor performers out of your business.
2. Recruitment freeze - whether you opt for a complete freeze or simply tighten your approval process for new posts, a recruitment freeze will encourage you to re-train or multi-skill existing staff.
3. Pay freeze - senior staff and managers could be asked to volunteer for a pay cut for a period, which can be a fair way to reduce costs in the short term.
4. Overtime ban - Unless you have a strict approval policy for overtime it can be easy for additional costs to mount up, with overtime becoming a matter of course rather than a response to business pressures.
5. Job sharing - if the alternative could be redundancy, some staff will be interested in the potential for job share. For you it has the advantage of flexibility, reduced cost and keeping skill and experience available for the future.
6. Review training methods and costs - Training doesn't have to mean expensive courses or qualifications. On-the-job development, including work shadowing, coaching and self-directed learning (reading, internet research) can all play their part and keep your staff up to date.
7. Suspend holiday trading arrangements - Flexible benefits are great, but many businesses would not choose to be buying back 'surplus' holiday at the moment.
8. Reconsider training contract policy - Reducing training places or ending a policy of automatic employment at the end of training contracts may be an option. But make sure you give careful consideration to the long-term impact on your supply of qualified staff.
9. Reduced hours - On a temporary basis, some staff could drop down to working four days a week, but also receive compensation of between 20% and 30% of the pay they would have normally earned on the fifth day.
10. Sabbaticals - Offers of sabbatical breaks of between one month and a year could be offered - usually with a proportion of pay guaranteed throughout, together with a guaranteed return to work at the end.

A word of warning: check employment contracts before you start to talk about any potential changes and do take advice before attempting to make changes to contractual terms.

Finally, good communication and a commitment to treat all staff with respect will help you maintain staff loyalty and engagement for the future.

For help and advice on practical people issues, contact Rachel Stone and her team on 0117 376 2076 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it