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Reduce your wage bill

The EU Working Time Directive, gives UK employees the right to refuse to work more than an average 48-hour week, and to have at least four weeks paid holiday a year.

Specifically, the Directive grants employees a legal right to:

  • A minimum daily rest period of 11 consecutive hours
  • A rest break where the working day is longer than six hours
  • A minimum uninterrupted rest period of one day every week (in addition to the 11 hours daily rest)
  • The right to work not more than 48 hours a week on average (including overtime)
  • Paid annual leave of at least four weeks

There is also a range of provisions specifically related to night work.

The rules do not affect most large firms, whose terms of employment by and large comply with the Directive, but it does hit small and medium-sized businesses (SMEs) badly.

It is estimated that the cost to SMEs of this Directive continues to be £2.75 billion, or £3,000 a year for a typical firm employing 20 staff. Most of the extra costs will come from the new holiday requirements. It is feared that in some cases the rules have lead to job losses, and even business failures.

All this at a time when wage bills are on the rise again in the UK. The present skill shortage is also putting upward pressure on remuneration for certain skilled workers.

With such pressures on the wage bill, small businesses are having to find ways of reducing their dependence on long working hours without damaging their performance. There are certain steps that you can take straightaway:

  • Streamline working practices to eliminate wasted time, duplication of tasks, and inefficiency
  • Reshuffle staff duties to make the best use of the skills and talents of your workforce
  • Review delegation procedures to make sure key staff are not unnecessarily overloaded
  • Control and, where possible, eliminate overtime

This last point is important:

  • Consider replacing permanent overtime with part-time staff - this is usually less costly, and the employees are usually more productive
  • Don't pay overtime unless an employee has already worked the full hours for the week
  • If you need to pay a premium for weekend work, pay an additional amount per hour rather than a percentage of the base pay - this is simpler to calculate and manage, and is less inflationary in the long term
  • Insist that all overtime is approved in advance

Remember, more hours do not necessarily mean better performance or increased productivity.

At a deeper level, many analysts feel that UK employers need to overcome the culture of 'presenteeism' and reward results and achievements rather than mere attendance. In other words, employees should be encouraged to work smarter, not harder.

Often businesses have to respond quickly to upswings in the market, and paying overtime and bonuses may be the only options open to them in the short term, but in the longer term a comprehensive review of remuneration policy could result in substantial savings to the wage bill.