The Advice Page

Tips to avoid slips; Reducing payroll costs

A common problem facing business these days is matching wage costs to declining  business income.

Many employers make the mistake of believing that hard times allows them to reduce wages and benefits packages as a contribution to business survival.

Employeesmay accept them, and many have. It has kept many businesses going as they struggle to keep the doors open in the face of lost business and employees see that their future is bound up with that of the business.

But employers need to approach this with a clear knowledge of the law; in this case of the contract of employment. With this and a good management and negotiation strategy they may get the changes by consent.

The legal position

All employees have a contract of employment even if not written down.  Its terms are what has been agreed at the point of recruitment and any well established conditions that operate on a day-to-day basis.

Changing these contractual terms unilaterally, for example by reducing wages or hours is a breach of contract and possibly also of the Payment of Wages Act. 

In reality, the business may find itself between the rock of redundancy and the hard place of short time working or wage reduction. But with the informed consent of your employees you can do almost anything (legal!)

Consult & negotiate

Employees will often know as well as anyone that business has dropped off.  Meet them; together or separate, this will depend on the number and how well you get on with them and spell out the options you are considering.

Listen to what they have to say. They may have ideas you haven’t thought of. Be honest about the situation. Redundancy, short time, or other options. But treat then as options. Don’t make up your mind until you hear what they have to say.

You may find someone will jump at the chance of a redundancy settlement which might not suit you. Either because it would cost too much or s/he has skills that are too valuable to lose.

Then a period of reflection!

  1. What did you learn from talking to the employees?
  2. What is your preferred option in terms of maintaining business efficiency?
  3. Paradoxically, is this a time to look at performance related bonuses? That might work.
  4. Can you phase the changes e.g. 10% reduction in wages for 6 moths returning to 5% then etc, or again make a commitment to do so subject to an upturn in business
  5. Then…it’s make your mind up time, making sure any options you decide on will not reduce the capacity of the business to recover

Record the agreed changes

When you have final agreement each employee should be issued with a revised, written contract of employment which also complies with the Terms of Employment (Information) Act. This eliminates doubt about what has been agreed and is in the interests of all parties.

For assistance in how to navigate these situations ring 086 2587940

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