Practical approaches to the rising cost of business from a HR perspective

Rising costs are major concern to leadership teams in every business in the UK right now. The financial situation is changing almost overnight and not for the better in recent weeks. So, what could an increased cost of business mean when it comes to making decisions about employees and your HR provision?

Taking a practical approach to human resources

Human resource management is important to everyone in every business, not least because the decisions taken regarding employees often have an immediate impact on people’s lives. When it comes to important decisions about your employee’s, impartiality really matters. You need to be able to see a situation for what it is, not what you want it to be. So, right now, we all need to be practical and impartial about human resources in the light of the current cost of business increases.

It’s not going away soon so prepare your HR strategy.

The employment shortage has been a serious problem and there is still a lack of candidates in many areas. Wages have been rising recently (particularly in skills gap jobs) and that is helping to push the national rates of inflation. Will this employment bubble burst at some point soon? Well, possibly but even if it does it will be months before the cost of business changes. As we have all learned in the past couple of years, things can change rapidly, and I think we are all a little bit less inclined to confidently predict what will happen next. So the best option is to go with practicality and accept that the hiring and retaining staff is an expensive exercise.

It’s not all doom and gloom though. There are several human resource related areas to think about that may help prepare your business for continued higher operating costs.

• It is always worth reviewing your allocation of resources on a regular basis but now is a particularly good time to look at them. Are you able to redirect finds from less important areas into supporting salaries and other employment costs?

• Could you change working practices or conditions to reduce costs. Clearly you need to stay within the terms of your current employment contracts (or review and change them) but there could be options to make considerable cost cuts. Changes to operating hours or increasing work from home options for example could reduce utility costs. Outsourcing or redistributing the duties of staff who leave through the natural churn of employees could be considerably lower in cost than replacing then.

• Nobody wants to make redundancies, but they could be a harsh reality. I appreciate it isn’t exactly a fun task but, if you do foresee the potential need for redundancies, the sooner you look at what that means the better. You will need to try and remove the emotion from this process as well. In practical terms, redundancies are about job roles, not the person in those roles. 

• Wage increases and bonuses may need to be looked at. Again, an impartial view is required here. Nobody likes to cut bonuses and perks but, in the end, they are exactly that, they are a bonus not a salary. 

• Look at performance management and where practical and possible, investigate new ways of getting the most out of your team. An invested and engaged workforce will be more productive and responsive to change.

• Make sure your metrics are in place and that they are balanced. There is a danger of over valuing some areas and under valuing others when finances are involved. Worries about cashflow can result in a leaning towards cutting training costs for example. It may, or may not be, a good idea but unless you have impartial comparisons to work from you will be guessing. Your metrics should be accurate and all related to profitability.

• Strangely, there is a positive from a recession or inflation prone market. Because of concerns about stability, employees tend to be less inclined to change jobs. So your retention may well improve but beware of this creating culture problems in the workplace.

• Be extra cautious, measured and systematic, when employing new people. It’s more important than ever to have a robust employment process. Estimates vary but even on the low end of the scale, a bad hire can cost a business a considerable sum. Even pre-pandemic, recruitment trade body REC were warning that a mid-level bad hire could cost £120,000 when all things were factored in. If you are going to hire in a difficult economy, we suggest you review your HR process first.

When the market is difficult, and the economy is turbulent, if you plan effectively, you will be less vulnerable to the unexpected. Whatever comes around the corner though, one thing will certainly not change. Your team are the thing that keeps you in business, which means that your HR processes are vital to riding out the coming rough waters.

Call us and let’s talk about your HR strategy. Whatever is coming you need to be ready, and we are here to help with impartial and practical advice and services.