Retrenchment Should Be The Last Resort: 4 Options Companies Can Consider To Reduce Cost First

The National Wage Council (NWC), a tripartite body comprising of representatives from employers, trade unions and the government, has released its annual NWC wage guideline for 2020-2021.

Saving as many jobs as possible, while keeping businesses sustainable, in the face of the COVID-19 pandemic, is a priority for NWC for 2020 and 2021.

Despite the government dedicating close to $55 billion in response to COVID-19, it’s clear that businesses, and hence workers, are going to be impacted in 2020. Some companies may even need to retrench its workers.

The National Wage Council understands this, and thus, has recommended some options for business owners in Singapore to consider adopting first before they think about retrenching their workers.

Read Also: Resilience Budget For COVID-19: 8 Important Ways The Government Is Helping Singapore Businesses And Her People During This Pandemic

# 1 Reduce Non-Wage Costs First

Lowering headcount is an easy way to cut costs quickly. At the same time, losing human talent can inhibit a company’s future growth. 

Businesses can also cut costs in other ways. For example, companies who are renewing the office lease can negotiate for a lower rent during this period. Businesses can also postpone their investments in other non-essential areas such as renovation works, upgrading new equipment, or cutting down on non-essential benefits. 

# 2 Support Affected Workers By Allowing Them To Take On A Second Job 

Some workers may have employment contracts that forbid them from taking on secondary work on top of their day job.

NWC suggests that employers who may have affected workers to allow them to take on part-time or temporary work to help them supplement their income. This is fair, and businesses should encourage and facilitate their workers to do so if their wages have been impacted. 

# 3 Management Should Lead By Example

If trimming the wage bill is necessary, NWC recommends for management to lead by example first.

Depending on their own financial position, businesses may consider reducing variable payments first (i.e. bonuses) to help the company lower the overall wage bill. 

# 4 If Monthly Wages Are Unsustainable, Monthly Variable Component (MVC) Should Be Reduced First

Besides bonuses, some companies also pay monthly variable component (MVC) as part of the basic salary for workers. If required, MVC can be adjusted first to allow businesses to reduce their monthly wage bill.

For companies who do not have the MVC but need to reduce their wage bill, they could consider cutting down wages by up to 10%. Management should consider taking a more substantial cut if required to lead by example.

NWC also suggests that low-wage workers who earn below $1,400 to be protected from these wage reductions. Instead, a wage-freeze or a smaller wage increase, could be introduced.

Employers should also restore these wage cuts once their business recovers. 

There Are Many Things Businesses Can Do Before They Need To Retrench Workers

While retrenchment may be inevitable for some businesses, NWC recommendations highlight the fact that businesses can do other things first on their own, before needing to embark on a retrenchment exercise. 

Companies can reduce non-wage costs, allow their workers to take on secondary jobs if they are working lesser hours, reduce bonuses and variable wages and even take a pay cut across the board first, before the need to retrenchment should be considered.

With the priority of the government to save jobs and to allow companies to run their businesses sustainably, business owners can likewise follow these bits of advice to ensure that they are responsible employers.

Are you a business owner in Singapore? Join our DollarsAndSense Business Community as we focus on how to navigate through the challenges of COVID-19 in the next few months.

Read Also: COVID-19 Has Impacted Businesses In Singapore – Here’s 3 Things Companies Can Do To Survive (And Thrive)

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