Assessing employee wages?

[Gouldie0]

Hi All,

I have been approach by a client to complete there bookkeeping on a monthly basis, that's the easy part and i'm comfortable with that.

Unfortunately his business made huge losses in the first year and is struggling to meet a quarterly payment to the bank. He is now on a cost cutting exercise, maybe a little to late but worth it none the less just in case things do turn around and the business starts to make a profit.

One of his suggestions is applying a mandatory wage reduction across his small workforce (7 staff). He also intends to take a reduction himself, but on what level i'm not sure.

Should he reduce his own salary first to see what impact that has before passing this wage decrease onto everyone else?

What's everyone's opinion on this type of action? Maybe one for the HR folk aswell, but what are his legal obligations? Can he actually do this, what protocol does he need to follow?

Kind Regards

Neil

 

[Employment Law Services]

Hi Neil

The answer to your last question is NO.......he can't just decide to roll out a mandatory wage reduction across his workforce as this would constitute an unlawful deduction of wages and leave him open to industrial tribunal action.

An employer is not allowed to make a deduction from and employee's pay or wages unless:

1. it is required or allowed by law, for example National Insurance, income tax or student loan repayments
2. the employee agrees in writing to a deduction
3. the employee's contract of employment says they can
4. it is a result of any statutory disciplinary proceedings
5. there is a statutory payment due to a public authority
6. the employee has not worked due to taking part in a strike or industrial action
7. it is to recover an earlier overpayment of wages or expenses
8. it is a result of a court order or Employment Tribunal decision

Its important to also note that a deduction must not reduce an employee's pay below the National Minimum Wage rate and this applies even if they have given the employer permission for it.

Please feel free to pass your client's details on to me and i'll happily have an initial chat with him to help ensure he doesn't fall fould of our complex employment laws.

Alternatively, pass my details to him so he's free to follow up himself.......there are a variety of different options available to employers that will acheive the desired results but in each case they must tread very carefully to avoid creating more problems.

 

[Gouldie0]

Hi,

Thanks for your response, i will pass on your details if you don't mind.

He thinks that he will coincide a change in hourly rate when it comes to the next salary review period. This will be put to the employees on the basis that they could be made redundant if the business continues to perform as it has without drastic action.

Is this not a better alternative (whilst not being ideal) than making individuals redundant?

Kind Regards

Neil

 

[Employment Law Services]

Hi Neil - yes please pass my details onto him!

Negotiating a reduction in pay/wages is certainly one way of avoiding redundancies but the way an employer approaches this is crucial.

Simply reducing what people get paid but expecting them to continue to do the same things and work the same hours is a recipe for disaster oand would impact the business on a number of levels, not least staff performance and productivity.

Employers should engage their employees in open and honest discussions and use consultation to identify as many options as possible so the business can make an informed decision and one that will leave employees feeling like they were not only considered but involved.

As I said, there are a variety of options available to employers such as giving employees the option of switching to a four-day working week, or taking a sabbatical of between one and three months for a percentage of the normal pay or Pay deferral schemes that allow a temporary deferral in pay, to be given back to employees at a later date.

The key thing in all of this is that the employer operates within the confines of employment legislation because failing to do so will only lead to more problems and I'm sure having to pay out >£8000 for either unfair or constructive dismissal is the last thing an employer wants, especially if things are already 'tight' financially.