Although the latest ISC figures suggest that pupil numbers at independent schools remain stable, not all parts of the sector are in rude health. We examine the outlook for schools in the current economic climate and how best to manage any necessary staffing cuts.
Whether due to the wider economic slowdown or simply changing patterns of demand from discerning parents, at least some schools are experiencing a fall in pupil numbers. All schools need to balance their own increasing fuel and food costs (not to mention salary increases) with the need to keep fees affordable for parents.
While demand for independent education is relatively inelastic when compared to demand for better homes and foreign holidays, it is not of course completely resilient to an economic downturn. If the current slowdown continues, it is likely that by this time next year many more schools will notice a fall in demand for places. Smaller schools in particular tend to be more vulnerable to even temporary dips in pupil numbers.
Further, the credit crunch has led to real caution from lending banks. Criteria for lending are becoming tighter and banks are looking for higher margins which will put further cost pressure on schools. Several school closures have hit the headlines in recent weeks which can only add to any concerns that lenders may have about the sector.
The bigger picture
A steady fall in pupil numbers may indicate that the school's current business model is not viable in the long-term. In that case, there will need to be a broad consideration of all the strategic options available. These may include:
- changing from single sex to co-education
- opening or bolting on a junior or nursery school
- merging or entering into a joint venture with another local school
- joining a group of charitable or commercial schools
- converting to an academy.
If the school is satisfied that the business model is fundamentally sound, but safeguarding measures are required, then plans for dealing with an expected fall in numbers can be done quietly but effectively. In simple terms this is achieved by either maximising opportunities for income or by reducing outgoings.
Planning for a downturn
Tighter credit control procedures can aid improvements in cash flow. Chasing unpaid fees earlier in the term and with more vigour, using legal proceedings where necessary, can both improve the payment culture within the school and provide certain reassurances to the bank.
As the school's biggest regular outgoing, reducing staffing costs has to be an alternative, however unpalatable or tricky this may at first seem.
Traditional means of reducing staffing expenditure include:
- not replacing departing staff
- streamlining management and responsibility allowances
- retiring staff in accordance with the statutory retirement procedure and replacing them with less experienced, cheaper teachers
- cutting overtime for support staff
- reducing teaching hours in less popular subject areas (having undertaken proper consultation with staff).
However, when pupil numbers fall, redundancies may be the only practical way to rebalance pupil/staff ratios. Parts of the school might simply be overstaffed, or economies could be made by restructuring and reducing the senior and middle management.
Reducing staffing at the right time can prevent the need for further, more drastic cuts at a later date. A carefully planned procedure should also result in under-performing staff in the areas affected by redundancies being the ones to leave.
Avoiding Blunders
There are some common misconceptions surrounding the requirements of a redundancy process which could distort initial decision-making as to whether redundancies are the best way of securing the long-term future of the school.
First, it is essential to ensure that the planned changes to staffing do in fact constitute a true 'redundancy situation'. For instance, changing the assignment of responsibilities within the SMT or the shift rota for ground staff without reducing the number of employees will most probably be a variation to existing contracts, rather than a redundancy.
Some advisers occasionally get this wrong, resulting in employers making unnecessary redundancy payments. Equally, a change from part-time to full-time hours is not necessarily a redundancy situation. In a nutshell, the test for redundancy is whether the requirement for employees to carry out work of a particular kind has diminished or is expected to diminish.
Second, it is often assumed that an employer must accept volunteers for redundancy. Accepting volunteers can take out much of the anxiety caused by a redundancy process. It can also placate trade union officials. It is however by no means mandatory to invite volunteers amongst skilled or professional staff. The school may lose some of its best staff, as those who volunteer are often those who will easily find work elsewhere.
Third, as soon as redundancies are raised as a remote possibility, governors have been known to insist that a redundancy policy is drafted and shared with staff. This can be damaging. It will needlessly make staff uneasy about their job security and many may start looking elsewhere.
Further, a policy can unnecessarily restrict flexibility. The key to avoiding claims for unfair dismissal is to follow a fair procedure according to the particular circumstances. What is an appropriate procedure for redundancy in the School's IT department one year is not necessarily the same in the English department or amongst secretarial staff in the following year.
Fourth, the criteria for selection can essentially be determined by the school, subject to consultation with staff. Note that this is consultation, not negotiation. Whilst these criteria should be as objective as possible, tribunals will accept an element of subjective assessment, particularly where this is based on records such as teaching assessments or appraisals. The scoring can be weighted in favour of the skills which the school will value most in the future.
Easing the blow
The financial cost of making redundancies may be lower than many assume. Statutory redundancy payments are low, particularly in the context of teaching salaries. For instance, an employee under 40 with five years' service is entitled to a statutory redundancy payment of £1,650. The maximum statutory redundancy payment (for an employee 61 or over with 20 years of service) is just under £10,000. Some schools may have more generous contractual redundancy terms.
If a school wishes to pay more than the statutory (or contractual) minimum, then it is worth making payment of enhanced redundancy terms subject to the employee signing a compromise agreement. Compromise agreements are a neat tool for providing a clean break; the employee settles all legal claims relating to the employment in return for a payment greater than the minimum entitlement.
The employee will need advice from a qualified union adviser or lawyer for the agreement to be binding. Confidentiality clauses are usually a feature. Carefully used, the offer of a compromise agreement can be a means of circumventing a redundancy consultation exercise and thereby avoiding alarming all staff.
Of course, some staffing changes will cause consternation amongst parents, particularly where it means that subject choices are reduced or a popular member of staff leaves.
Tough decisions
If the credit crunch continues to squeeze parents' and restrict the availability of bank funding, then more independent schools may have to make tough choices.
Whilst concentrating on increasing revenue and reducing costs will be the first line of defence, early redundancies should not be ruled out as they may not be the labyrinth that some expect. Nonetheless, schools need to be realistic about the prospects of returning to an equilibrium level of pupils and staff. Above all, it is important to be open-minded, perceptive and ready to change culture if that is required.
For more information, please call 0117 314 5443 or email Karl Deakin or Barney Northover
