Is the price of the pandemic still costing your business?
If that’s the case, you might be weighing up the tough choice to reduce staff pay. Especially if your remote employees are now saving heaps on commuting fees…
So, from legal risks to HR concerns, read on to discover all you need to know about wage cuts.
It’s all about consent
Employees agree to their salary in their employment contract.
As that’s a binding agreement, you can’t change your worker’s pay without updating their contract. And to do that, you’ll need their written consent.
Otherwise, you’d be unlawfully deducting wages. Which leaves you open to grievances, legal battles, and tribunal fees.
So if you decide to press ahead with pay cuts, asking for consent is the first thing you should do.
If your employee agrees, keep a copy of their consent. Without it, you can’t prove you’ve lawfully deducted pay – so write a letter which outlines the changes and ask staff to sign it. Or, alternatively, ask for their consent over email.
What are the risks involved?
An employee might be more likely to accept a pay cut if you have a strong business reason – like if it means you avoid making redundancies.
But if you have little reason other than to free up money, you could face backlash.
Because unless you already set salaries to include travel costs, it would be hard to explain why you’ve made the decision. If you originally based employee’s salaries on experience or performance – and those haven’t changed – a pay reduction would seem unfair.
Which could mean losing your best talent, getting bad press, and dealing with grievances.
It would also be tricky to decide how much to deduct wages. For example, would you introduce a blanket deduction for all remote workers? Or would you base every reduction on how much each employee saves?
While a blanket deduction might lead to accusations of unfairness, it would be difficult to work out how much each staff member saves.
Be wary of discrimination claims
If you reduce remote workers’ pay, there’s also the risk of discrimination to consider.
For example, you might allow staff with disabilities might work from home. Or your female staff may work remotely for childcare purposes. Since these are protected characteristics, reducing their wages could result in a costly discrimination claim.
There are serious downsides…
Before you reduce pay, it’s important you’re aware of the potential risks.
Because while it can offer some much-needed breathing space, it can cost your business in other ways:
High turnover
Even if your staff agree to a cut, they could soon look elsewhere for better pay – especially if they’ve adjusted to their existing salary. Can you risk losing your hardworking staff?
Damage to your reputation
Brands like Pret hit the headlines for making permanent pay cuts. While your business might not make national news, word of mouth could damage your reputation in your local area.
Potential legal backlash
If staff feel forced to agree to a pay cut, they could later fight against the reduction. That could mean strikes, grievances, or even constructive dismissal claims.
Lack of engagement
When staff are paid less for the same work, they might feel less motivated – especially if their pay cut is permanent or has no end date.
Instead, consider alternatives to reducing pay
If you’re thinking about ways to cut costs, reducing wages isn’t always your only option.
Choosing another way to save money means you avoid all those risks to your business. Alternatives could include:
- Pausing bonuses
- Freezing recruitment
- Asking staff if they’re interested in reduced hours or part-time work
- Offering job sharing through flexible working
- Offering early retirement
- Introducing company-wide remote work and saving on office space
Remember to protect your business
Choosing to reduce pay won’t be a popular decision with staff. But if the cost of the pandemic has hurt your business, it may be your only choice…
If that’s the case, you need to protect your business against legal backlash. Otherwise, you could face tribunal pay-outs – which come at a much bigger cost to your business.
That’s why, with Peninsula, you get unlimited advice. It means can always speak to an impartial employment law expert to check you’re making fair and legal decisions.
And with watertight documentation, you can prove you’ve followed a compliant procedure. Plus, you get all the help you need to handle tricky conversations and conflict.
So you turn what could be a legal nightmare into a smooth, fair, and conflict-free process.
