With inflation and interest rates on the rise, customers are beginning to tighten their purse strings. Unfortunately for business owners, this can mean fewer sales, more debtors, and increased operating costs across the board. It's no wonder you're feeling the pinch!
But don't fret, our accounting team recently shared 7 ways to recession-proof your business . Now our legal experts provide some simple steps you can take to recession-proof your business from an employment perspective. Let’s goooo.
Get to Grips With Your Employment Costs
It may be painful, but it's crucial that you review and understand your total employment costs. This means taking into account everything from employee salaries and accrued leave entitlements, to insurance (including WorkCover expenses), payroll tax, equipment and consumables, and even the cost of employee celebrations and events.
Reviewing and potentially reducing spend on things like office fruit, tea and coffee, or capping travel and entertainment expenses may not be popular. But this knowledge will help you identify areas where spending can be reduced to maintain a strong financial position.
Implement Clear Business Policies
Anything that creates a cost to the business should be governed by a policy. This ensures that your expectations are clearly communicated to employees and provides a process to address overspending. In tough financial times, a properly drafted policy can help you tighten the reins on employee spending. We’re talking about things like company credit cards and booking travel arrangements like hotel and flight cost limits.
Tighten the Purse Strings
‘Take care of the pennies and the pounds will take care of themselves’. In uncertain financial times, this old saying is as true as ever. Now is a great time to review how your employees spend money and introduce economies where possible. This could mean reducing the cost or frequency of employee events. (Maybe swap those Friday after work drinks at the pub for a couple in the office). Carefully review claims for expense reimbursements as well. As the cost of living increases, employees will be keen to claim things like fuel, parking and anything else you may have previously let slide.
Another important one to assess is standing orders for consumables. Think about whether the business is overordering and if you can reduce ongoing orders to reflect actual need.
Review Bonus Entitlements and Contractual Pay Increases
Not all employment agreements or incentive agreements are created equal. Some may bind an employer to paying bonuses even when the company isn’t performing. Review your employment agreements and update those terms if required.
As a rule of thumb, the payment of bonuses or incentives should be linked back to the performance of the company and to reasonable projected risks. During a recession or downturn in business, discretionary payments should be handled with caution.
Limit Overtime
This is a big one. When a business is thriving, it’s common for employers to be a little laissez-faire about the amount of overtime being clocked up. But in times of financial strain, overtime can represent a significant financial burden. Also, in tough times, employees often seek our opportunities for overtime and try to claim payment for any additional time worked. Clear contractual and policy terms regarding overtime are critical for managing it.
Then there’s time in lieu. Where you do offer it as an alternative to overtime pay, it’s important to have a policy in place that requires that time off to be taken within a set period after it accrues, avoiding the accrual of monster time in lieu balances.
Communicate With Employees
Whatever you do to manage your business during a potential recession, clear communication is key. When a business starts reducing costs (and the media reports on economic volatility, cost of living pressures and businesses making redundancies or implementing hiring freezes) employees will rightfully feel a little vulnerable. Be transparent and keep them in the loop any changes being made.
Get Help to Recession-proof Your Business
There you have it! Follow these tips and you'll be on your way to recession-proofing your business from an employment perspective. If you need further assistance, get in touch with our Employment Law team, or find out more about what our other skilled commercial lawyers can do for your business.
