There are several reasons as to why an employer may seek pay cuts, but the most common reason is that the business has slowed or stopped and outgoings have to be reduced.
Just as wages can be increased through negotiation they can be reduced through negotiation with the only caveat being that the wage can not be less than the national minimum wage or any wage agreement.
Under section 5 of the Payment of Wages Act 1991, an employer is prohibited from making a deduction from an employee’s wage UNLESS the employee has given his prior consent in writing to it.
For the employer this means that, having come to the decision that pay cuts are needed, that you have to formally engage with your employee(s) to notify them of this fact. Ideally, we would recommend that you call the employee(s) to a meeting and explain to them why you are looking to reduce wages and provide them with a letter that reiterates the points made at the meeting.
At the meeting show how you have tried to make other cuts to avoid this measure. Share your information with your staff and be honest.
No one wants to take a pay cut and it is a very stressful situation to be in. Be mindful that saying to an employee that ‘this has to be done or he won’t have a job’ won’t suddenly make them grateful to be working the same hours for less money and will have a negative impact on the relationship.
Reassure them by stating that the company will review the pay cuts every month (two months, three months etc.) to see whether the pay can be increased.
After the meeting set up another meeting, giving enough time for the employee to think through matters and see if they can think of any other cost cutting measures.
If the employee consents you must get this in writing.
If the employee does not consent you may need to consider other options such as redundancies.
Every employer is unique and their business reflects this. Pay cut advice is not a ‘one-size-fits-all’ topic. We hope the above helps to steer you in the right direction, but if you need more tailored advice we would recommend that you contact us on 01 8774608 or [email protected] to speak with one of our consultants.
Stay safe and wash your hands!