1. analyze the regional labour market
The regional labour market is crucial for an initial analysis of current placement opportunities and severance pay levels.
Here are some questions that should be researched for an initial assessment:
- How are the unemployment figures developing?
- Which sectors are dominating?
- Are new company relocations planned and/or is it apparent that others are weakening?
- What restructurings have taken place in recent years, with what characteristics?
This research can be carried out without naming the company by the expert. In addition to using digital press archives and their own network, they will also make direct contact with the employment agency and, if necessary, with transfer companies if they have carried out similar projects in the recent past.
The partners involved at this early stage are familiar with such situations, understand that this must be anonymous and strictly confidential in the phase before a final decision is made by the company, and have a great interest in incorporating their expertise into the planning during this exploratory phase. In a later phase, these early contacts can be built on to save time.
This initial phase also provides important indications of expected severance factors and placement opportunities for the affected employees.
2. Clarify the availability of transfer short-time allowance
In initial exploratory discussions with the employment agency, the possibility of using transfer short-time allowance and any other support options can also be clarified without naming the company.
The person at the employment agency responsible for approving short-time work transfer benefits usually has a great interest in being involved in the planning of placement support at an early stage. They will provide the company with comprehensive advice on which funds are available and which requirements and framework conditions must be observed.
So-called transfer advice is a basic prerequisite for subsequent funding. The preliminary discussions make this a formality that can be carried out together with company representatives once the planning phase has been completed.
In addition to the transfer short-time allowance required to finance the transfer company, further training costs can also be covered (in part or in full). The earlier the start of further training measures is defined and begun, the more funding opportunities there are.
For older employees, a transfer company can offer the possibility of early retirement after a subsequent 2-year period of receiving unemployment benefit. These up to 3-year "bridges to early retirement" are attractive for many older employees. For communication and subsequent implementation, it is important to know how the regional employment agency deals with cases where there is no or very little interest in placement on the part of those affected.
These preliminary discussions provide clarity on the minimum requirements for the equipment of a transfer company, in particular the duration, qualification budgets, net salary increases and so-called sprinter bonuses, which reward early placement in subsequent employment. This in turn results in reliable key data for estimating the costs of the measure.
Involving the employment agency at an early stage also increases process reliability with regard to securing the transfer short-time allowance and a formally correct and timely submitted mass redundancy notification.
3. Analyze the workforce structure
Different implementation scenarios can be evaluated using (anonymous) employee data. The focus here is on the following aspects:
- What impact would social selection have?
- On the basis of legally sound examples (e.g. from the case law of the Federal Labor Court) can be used to determine who would be affected first in the event of redundancies for operational reasons.
- The data on jobs (job titles) available in the HR system is a first point of reference for delimiting employee groups. An early review of the available data is an important basis for further action planning.
- What are the notice periods? Are these regulated in individual contracts or are only the statutory minimum periods (corresponding to length of service) to be observed? What would this mean for termination periods and costs?
- A transfer company offers the possibility of an immediate transfer of all affected employees at the time of the measure (e.g. relocation, organizational change, (partial) closure).
- The notice periods are incorporated into the transfer company, determine the individual minimum term and thus make a major financial contribution to the transfer company from the company's perspective.
- The (individual) minimum employment period in the transfer company is an important design element in a social plan. This is often determined, for example, by the double notice period. In addition, a minimum employment period applicable to all can be defined. As the maximum employment period is determined by the maximum funding period of one year with transfer short-time allowance, social compensation plans often contain formulations such as "employment period in the transfer company corresponds to double the notice period, maximum one year, minimum four months".
- It is important to know the financial implications of these design parameters before entering into negotiations on a redundancy scheme.
- What is the age structure? How many employees are eligible for a special regulation for employees close to retirement age?
- Since severance payments are intended to be appropriate compensation for the loss of a job, employee representatives do not favor the application of severance payments for this age group, which are largely determined by length of service. Instead of awarding a very high severance payment to someone who is a few years away from retirement but can look back on many years of employment, it makes sense to change the perspective and base the financial compensation on the time until retirement. The application of appropriate formulas has a significant impact on the overall costs and results in potential savings and more scope for structuring.
- An analysis of length of employment, age and activity also enables a qualitative assessment of employment and placement opportunities.
Model calculations using personnel structure data with severance payment factors and the design options for a transfer company can be used to determine a budget for the personnel costs of the restructuring measure.
This creates the basic framework for a personnel data set that can be used to quickly determine the effects of parameter changes in subsequent negotiations.
4. Obtain offers from transfer companies
Research on regionally established and certified transfer companies deepens the assessment of the specific absorption capacity of the local labour market and provides a reliable cost framework based on anonymized data.
- The relevant parameters for the costs of the transfer company are determined by the monthly salary, the individual term and a customary top-up of the transfer short-time allowance. As soon as an initial set of data on the employees affected by the redundancies is available, a transfer company can very quickly determine the so-called retention costs, i.e. the costs that must be added by the company to bring net pay up to, for example, 80 percent of the previous level.
- The rule of thumb "one month's salary finances two months in the employment company" serves as a rough guide. This makes it clear that the phase-out costs determined by the notice periods cover a significant proportion of the costs of the transfer company.
- Additional cost elements result from the administrative costs, the qualification budgets and the advisory services to support professional reorientation. While the calculation of wage costs should lead to the same results for all providers, there are differences in the design and amount of the actual services provided by the transfer company.
- It is advisable to obtain references, in which the administrative service should also be requested in addition to the quality of advice and placement. A good transfer company organizes billing efficiently and reliably and tracks and reports on placement successes in monthly status meetings. The basic use of the funds released by early placement must be clarified in advance and can then be decided jointly at the status meetings. They can be used for hardship cases, for example.
5. Compare the advantages and disadvantages of the various implementation options
Together with severance models, there are various implementation options that can be evaluated in terms of costs, legal risks and timeframe. You receive a qualified basis for an entrepreneurial decision on staff reduction.
One of the major advantages of the transfer company is that
- employees can transfer on a specific (joint) date - regardless of individual notice periods. This enables very rapid redundancies.
- The acceptance of the transfer company option is generally very high: employees gain time for professional reorientation and remain in an employment relationship subject to social security contributions without any disadvantages for pension and unemployment benefit claims.
- From an employee perspective, the additional funding from the employment agency also makes the offer more attractive from a financial perspective, with the same overall budget for the company.
- As the path to the transfer company only leads via the "tripartite contract" (between the company, transfer company and employee), companies have maximum legal certainty.
- This leads to a comparatively "calm" implementation of the staff reduction, which can be described as socially acceptable and also leaves a comparatively positive image for the employees remaining in the company and in the region: an effect that should not be underestimated! The press coverage and political reactions to the job cuts will be significantly different thanks to the support provided than if there is a pure severance solution and the employees are "sent out onto the street" after short notice periods in some cases.
- Contrary to the usual prejudice of a "high administrative burden that medium-sized companies cannot meet", on the contrary, the early involvement of the transfer company in the implementation shows that no additional workload is placed on the companies: the time-consuming consulting service after the transfer offer (three-page contract) is provided by professional experts who are provided to the required extent. The HR department is only involved in the final accounting (remaining leave, time balances, severance payments) and in issuing the certificates.
- The "planning and preparation hurdle" can be handled very quickly and discreetly by an expert as described. The fact that this can be done without naming the company means that this preliminary work is even easier and quicker to complete than if attention is already focused on the company at an early planning stage.
6. Prepare a negotiation and communication strategy
Before entering into negotiations, key persons (works council, trade union, politicians) should be identified who should be informed in advance and won over for the procedure.
Mayors and, if applicable, members of the Bundestag greatly appreciate it if they are informed about the planned measures, their economic basis and the planned implementation steps at an early stage. They are thus prepared for subsequent press inquiries, can show that they are informed, but also know that the decision and the procedural planning have been soundly and professionally prepared. Even if confidentiality can be assumed, this information should be provided no more than two days before the workforce is informed.
You should be prepared for press inquiries and have a corresponding statement ready. With a transfer company, the frequently used formula of "social compatibility" becomes tangible and the focus shifts more quickly from denying the necessity of the measure to supporting the professional reorientation of those affected.
Finally, key members of the workforce representatives (works council chairpersons, trade union representatives) should be informed in advance in smaller meetings. They should have the chance to familiarize themselves with the new situation before they have to position themselves on a larger stage. With the transfer company option, the company can give the employee representatives an early success in the negotiations and an agreement can be reached on when this will be considered "agreed" and who will communicate this. Employee representatives should also be given at least a say and veto right in the final selection of the transfer company.
In fact, it is important to clarify at an early stage whether a transfer company is fully supported or whether there are negative votes. This may be the case, for example, if the employees affected are highly qualified, have very good career prospects and the regional labor market is very receptive. Short-time work-based approaches are also not popular for incomes above the income threshold.
But these points should have already been noticed in the first steps of the expert analysis (see above)...
Conclusion: Socially responsible job cuts with manageable costs are possible
When planning responsible job cuts, one should
- start from an analysis of the regional labor market,
- clarify the implementation options with regard to the workforce structure
- and contact the employment agency at an early stage: There is tangible and financial support available in cooperation with the employment agency.
In particular, the use of a transfer company should be considered. This is because transfer companies help to implement staff reductions quickly and with reliable planning.
Although this instrument is often associated with large companies and is considered complex and expensive, an experienced interim manager can make the advantages of this implementation method accessible to medium-sized companies.
Get in touch! We can develop a solid basis for negotiations with employee representatives within two weeks.
