Inez Anderson: cut costs and save jobs.

Tips to cut staff costs

Published:  13 May, 2009

LONDON: Employee costs are the most expensive part of any businesses' budget. According to the Office for National Statistics, the redundancies level for the three months to November 2008 was 225 000, up 78 000 over the quarter and up 101 000 over the year. This is the highest figure since comparable records began in 1995.

Inez Anderson, an employment tax director at accountancy and financial services firm, Smith & Williamson, explains how to reduce these, costs without having to make redundancies. 


In the current climate, businesses are looking to save money and many people have lost their jobs. There are steps that businesses can take to reduce what is often their greatest cost, without cutting jobs.

Salary sacrifice

One option is using 'salary sacrifice' arrangements to provide benefits. Salary, which is subject to tax and national insurance can be sacrificed in exchange for benefits the employee was previously paying for out of after tax income.

The greatest savings are achieved when the benefits are tax and social security exempt. 

Typical examples are childcare vouchers, pension contributions, car park facilities and staff canteens. 

This reduces the cash salary on which the employee pays tax and both the business and the employee pay National Insurance contributions.

The net result is that the business and employee save National Insurance and the employee saves the tax cost on the salary sacrificed as the benefit is being bought out of gross salary, not net.

To be tax effective, a salary sacrifice must take the form of a written amendment to the employee's contract, be made in advance of the salary entitlement crystalising and not be capable of being changed back at short notice.

It is  also important to watch what impact there may be on entitlement to state pension, state benefits such as maternity and sickness and child tax credits.

For companies that already have flexible benefit schemes in place, it may be posible to stop employees selling holiday back to the business as this is a cash cost to the company. 

Encourage staff who are not busy to purchase additional holiday, in other words, take extra unpaid leave.

Review existing schemes

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

If redundancies are inevitable

If you do have to make redundancies and are negotiating, it is important to remember that the first £30 000 is not always tax-free and also that more than £30 000 could be exempt from National Insurance.

The employment law aspects of termination arrangements can be complex and businesses focus on these and forget about the tax and National Insurance issues.

Careful planning and consideration should be given to these areas as there is the potential for substantial savings to be achieved.

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