In a series of articles over the past weeks we have set out ways that employers and employees should try to avoid redundancies; there are lots of far more constructive alternatives to consider first.
In this third and final article we look at ways of reducing people’s pay as an alternative way of saving money.
Short of job losses, this is perhaps the most controversial and potentially problematic practice employers may adopt. Employers who need to reduce remuneration are advised to inform the workforce in advance, setting out in clear language the cost/benefit elements of such an exercise. Where possible, management should lead from the top by sharing in any cuts. Ideally, the measures should be limited in time with, perhaps, a promise for long-term improvement once market conditions change.
Salary sacrifices occur where an employee gives up part of his salary in return for a benefit, for example, pension contributions or childcare vouchers.
Implement a pay freeze
Most employment contracts provide for salaries to be reviewed regularly, usually annually. Less commonly, contracts give a right to an annual or periodic increase in pay. To the extent that a contract only promises a salary review, it is legally permissible for an employer to freeze pay, once it has carried out a review.
Reduce pay or benefits
In a particularly difficult economic climate, employees’ attitudes may be such that cuts are agreed to in order to save jobs. It is also possible to structure pay cut arrangements so that, over time, salary levels will recover or total packages will remain unchanged.
Any pay cut is likely to affect employees’ motivation and commitment to the organisation. Employers who explain clearly why they seek to adopt this option and the overall positive impact they are trying to achieve for the organisation’s employees are more likely to secure employees’ consent.
Change pension arrangements
An employer seeking to change its pension arrangements must normally consult with and obtain the consent of its employees or employee representatives. Most changes must be approved by the pension scheme trustees and be permitted under the terms of the scheme in question. Failure to consult and obtain advance consent of employees can have various legal implications, including breach of contract claims by employees and action by the Pensions Regulator for the employer’s failure to inform and consult.
Whether an employer can withdraw or cut down on bonus payments depends on whether the bonus arrangements are discretionary or contractual, whether the bonus payment is designed to reward past or future performance, and whether it depends on individual or collective performance.
When considering alternatives to redundancy, employers might find it helpful to take the following factors into account:
When implementing alternatives to redundancies, employers ought to retain enough flexibility to reverse arrangements on short notice, to cater for improved trading conditions