Short-term working is a key method of reducing overheads while maintaining talent but organisations need to manage it very carefully, writes FRANK DILLON

BELOW THE radar of Ireland’s rising unemployment statistics lies another emerging trend. Organisations are increasingly reducing working hours as a way of slashing costs. The phenomenon is particularly noticeable in sectors where labour costs account for a high proportion of overheads, such as the services sector.

Michael McDonnell of the Chartered Institute of Personnel Development has noted the strong growth of the trend in recent months. He sees it as an “each-way bet” on the part of organisations that need to shave overheads without undermining their skills base. “It’s hard to predict when the recession will end, and organisations want to make sure that they are positioned well for the upturn in terms of their human resources.”

Over 40 per cent of our exports are now service-driven, and organisations in this area have invested very heavily in their people. While it may be hard to see it now, with some commentators suggesting that unemployment could rise to as high as 500,000 by the end of this year, longer-term demographic trends favour employees, he notes, and a battle for talent will re-emerge in time.

That may be of little comfort to those facing a drop in their living standards due to a move to a three-day week. In the 1980s recession, employees opted for redundancy and emigration as an alternative. “High levels of personal debt and the lack of prospects abroad have changed all that,” McDonnell says. “People are much more inclined to hang in there now.”

But what are the legal implications involved in reducing employee working hours, and what are the potential pitfalls?

Some employment contracts allow for short-term working in certain situations. In others, changes in employment conditions imposed by an employer without agreement can amount to a breach of employment contract. In the current environment, employers are betting on the assumption that employees will go along with short-time working as an alternative to redundancy.

“It is important to have a fair and transparent process when selecting candidates for short-term working, or you could leave yourself open to a charge of discrimination,” advises Joanne Hyde, head of employment law at solicitors Eversheds O’Donnell Sweeney. Where possible it is better to spread short-term working over a wide spectrum, such as an entire department. However, it is possible to exclude certain employees if it can be shown that business contracts they are working on, for example, require their full-time services.

Employees retain employment rights during short-time, but holiday entitlements are reduced pro-rata with the reduction in working hours. Employees also generally retain non-direct pay benefits such as the provision of a car or health insurance.

Hyde says she has seen a huge increase in enquiries about short-term working recently, with most firms implementing three- or four-day arrangements, with the agreement of staff. Where short-term working goes below half of a typical working week and continues for a number of weeks, there are situations where an employee may be entitled to seek a redundancy payment.

In negotiating short-time working with employees, the most tricky situation arises when a small minority of workers do not agree, Hyde says. Here, employers may opt for a redundancy programme, or press on with the short-term working plans in any case. Employees have the right to sue for breach of contract, but this can be a long and expensive process with an uncertain outcome.

Brendan McGinty of Ibec says disputes about short-term working are less likely to arise where employers and human resource managers engage proactively with staff about the difficulties facing a business. Where goodwill is extended on both sides, shorter weekly working hours can prove to be a short-term measure, with the original hours restored when trading conditions allow.

There are a number of conditions attached to short-term working that employees and employers should be aware of, he points out.

For example, employees going from a five-day to a four-day week are not entitled to job-seekers’ allowance for the day they are not working, whereas they are entitled to an allowance if they are working a three-day week.

Apart from loss of income, the downsides of reduced working hours can include stress, demotivation and a breakdown of the psychological contract between employer and employee, says consultant Brian McIvor, author of Career Detection, Finding and Managing your Career (published by Management Briefs in association with The Irish Times). “It may also serve as an early warning signal that the job is history, or that the sector they are in is in long-term decline. Employees should have their bag semi-packed.”

On a more positive note, he says employees can turn short-term working to their advantage by using the time off to re-evaluate their situation. “I also advise employees in this situation to take at least one day a week out to recharge the batteries and to do some networking.”

McDonnell says he has noticed an increasing acceptance on the part of Government of a need for more flexibility in regard to “earn and learn” initiatives where employees can use time spent not working for study – without being penalised through loss of their job-seekers’ allowance.

Dr Ann Parkinson of Henley Business School sees short-term working as an opportunity for people to escape the culture of long working hours, to spend more time with families and to reassess their lives. “While it can be tough for some, the bottom line for people is that they still have jobs and in many cases, their incomes will not have fallen by as much as they imagine because they will be paying less tax.”

Organisations need to be clear on the reasons for reduced hours and keep their employees up to date, agrees Dr Fiona Robson from Newcastle Business School, Northumbria University. “It is particularly important that information is communicated directly to employees to avoid the ‘rumour mill’; especially when employees are likely to be under pressure and suffering from anxiety,” she advises.

McIvor suggests employers can help staff by identifying their best qualities and telling them how they affect future employability. Employees should recognise this is a testing time for employers. How employees react to bad news is a measure of how well they are equipped to deal with an uncertain labour market.