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Cut Costs Or Keep Staff: Is There An Alternative?

Published February 03, 2016 (last updated June 24, 2020) -
Man Looking At Graphs Cut Costs Or Keep Staff

Most small businesses are hyper sensitive to the swings of the economy. When the revenue line falls, most businesses naturally turn to the cost line. But in most small businesses the biggest cost is staff and as an owner operator you have spent long periods building up the skills and rapport with staff who know your business, and if you let them go, it will be hard to get them back when growth returns.

Employsure provides some alternatives to this classic trade-off, by taking a holistic look at ways to increase business efficiency in tougher times, while considering alternatives arrangements with staff before defaulting to staff cuts.

Uncertain times call for strong leadership

Leaders use tough times and the need to increase business efficiency as an opportunity to look at things from a fresh perspective and ultimately, challenge the way things are done. Leaders remind their staff that with the ups and downs of the economic cycle, pulling together and adapting, in a structured and organised way, can become part of the businesses DNA. The best leaders also make increasing business efficiency a team problem, stating that if we all give a bit, we will all get through it. Leaders also lead from the front by making changes to their own routines to demonstrate the importance of business efficiency. Some additional techniques include the following.

– Set a target: have a reasonable understanding of the size of the saving you need. The bigger the saving the more substantial the change to your business will be
– Prioritise: not all the efficiency opportunities you identify will be practical and not all can be done at once, hence the need to prioritise and sequence them in a logical order.

Types of efficiency initiatives

With your target in mind, it is now time to review your business for the efficiency opportunities that will help you reach your target. A range of initiatives and what to look for are itemised below.

The bigger picture

– Which parts of my business are most important to my customers? Which parts are less important and thus I can afford to change or amend?
– Can I merge or collaborate with other related businesses?

Structuring my business

– Can I consolidate related areas in order to drive down cost?
– Can we bring some activities in-house?
– Can I outsource any activities to someone else to do more efficiently?
– Do I operations in multiple location, that can be centralised into one?
– Can I reduce office space by getting some people to work from home for a set period?

Process changes

– Can I re-think how to achieve the same outcome with a different, more efficient process?
– Are there any steps that add no or low value, and thus are not required?
– Do I have any double ups in my processes?

Supplier arrangements

– Do I have supplier arrangements where the price has been the same for a long time? Can I pursue a different supplier or ask my existing supplier for a better price?’
– Can I make do with the bronze version, when I have been using the gold version all this time?


– Do I have projects that are no longer important or viable given changing conditions, hence, I can stop investing in them.

Options for reducing labour costs

If labour costs need to come down, there are other options to investigate prior to redundancies. Ultimately, the combination of options that are right will depend on your individual business.

Alternative Options

Taking of leave

– For a defined period, ask employees to consider taking their paid leave, or unpaid leave, possibly in conjunction with a business shutdown over the same defined period

Reducing in hours or pay

– Any reduction must still meet or exceed the minimum rates set by the award applicable to your business

Job share or part-time work

– Ask staff if they would consider job sharing or working part-time for a period of time

Non-contractual Benefits

– Are there any monetary or cost benefits you are currently providing to staff that could stop for a set period while the business tightens its belt

You as the business owner will be best placed to know whether your employees would be willing to take such steps to avoid redundancies.

Please note, these options need to be agreed with your employees and you cannot change employee’s terms and conditions of employment or apply any duress or undue influence to make them do so. Seek advice before you take any action to avoid potential claims.

Additional Options

Most modern awards contain overtime and penalty rates for employees. Where you have staff working rosters or outside of standard office hours, there are a number of changes that can help reduce the wages payable.


– Analyse the amount of overtime conducted to determine whether it is really necessary
– If it is significant, ensure you have sufficient staff to complete the work so you do not have to pay overtime
– Do your customers really need you outside normal hours of work? If not contain work to normal hours only, meaning overtime rates are not payable

Evenings, weekends and public holidays

– Roster more junior and less qualified staff to work evenings, weekends and public holidays when penalty rates are payable. Also utilise staff who are paid a flat salary to work these shifts, provided they are being paid sufficiently above the award to absorb these higher rate

Fluctuating work hours

– Utilise casual employees. Even though they are entitled to casual loading on their hourly rate, they are likely to be more cost effective if your needs often fluctuate and you cannot guarantee minimum hours. You only have to engage them when you need them

Junior Staff

– Utilise apprentices, trainees or more junior staff in non standard periods, if a more senior staff member is not required


Generally, even employees with only one year of service are entitled to four weeks redundancy pay, increasing up to 16 weeks for employees with 9 years of service. Luckily, small business employers are often excluded from the obligation to pay redundancies.

The full cost of a redundancy is the immediate financial pay-out and the loss of the employee’s skills and the future positive effect on the business. Judgement here is critical. If you judge a short lived slowdown, weigh up the full cost of redundancies verses other options to allow you to retain your employees. If you judge the slowdown will be more protracted and redundancy is inevitable, it may be better to reduce headcount sooner rather than later. Ongoing cost cutting and the uncertainty surrounding job security is likely to have a significant negative effect on morale and productivity. Making hard decisions upfront will allow you and the rest of your employees to get on with the business.

Engaging the workforce on the changes

Not only is consultation a legal requirement in relation to redundancies and major workplace changes, including alterations to hours and restructuring of roles, it is also crucial to obtaining employee buy-in to the changes. Consider who your key influencers are within the business and engage them early on in the process, so they can champion the change with you. To reduce the impact on the business and morale, be clear on timeframes and finalise the process as quickly as possible. Afterwards, consider taking steps to reassure the remaining staff about the future and to view this as a fresh start.

The top tip for managing any business change amongst your staff is to seek advice. Our specialist advisers are on hand 24 hours a day, 7 days per week to guide you through any difficult scenarios.

Restructures and redundancies are complex, high risk and sensitive matters. If you are considering your options, please contact Employsure’s Advice line on 1300 207 187 – we are available 24/7.

About Employsure

Employsure is Australia’s largest workplace relations specialists. We take the complexity out of workplace laws to help small business employers protect their business and their people.

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