Redundancies often cost more than £16,000 each, according to the Chartered Institute of Personnel and Development (CIPD).
The CIPD has produced a lengthy formula for working out the cost of redundancies in a bid to stem the tide of job cuts.
The UK’s unemployment rate hit a nine-year high in the three months to October 2008, latest figures showed before Christmas, and a new wave of job cuts is feared in early 2009.
CIPD chief economist John Philpott said: “Businesses are under huge pressure right now and restructuring is a fact of economic life that can never be ruled out.
“But while making people redundant can seem one of the most straightforward ways of cutting costs, redundancy is itself a significant cost to most organisations with a number of direct and indirect or hidden costs.”
The CIPD’s formula says the cost of redundancy = (n x R) + (X x H) + (X x T) + ny(H + T) + Wz(P – n), where:
n = number of people made redundant
R = redundancy payments
X = number of people subsequently hired
H = hiring costs
T = induction/training cost
y = percentage quitting post-redundancy
W= average monthly staff salary
z = percentage reduction in output per worker caused by lower morale
P = number of people employed prior to redundancies
Philpott added: “While the average direct cost to employers of making redundancies can reach £16,375, on top of this are hidden or indirect costs resulting from the effect of redundancy on survivor employees, such as higher labour turnover and a fall in staff productivity.
“The formula shows how redundancies can impede quick recovery from the downturn. This doesn’t mean that restructuring can’t take place but it should be with a view to the long term and not short-term cost cutting.”
Read the CIPD report A False Economy: the cost to employers of redundancy here.