Pay cuts or reduced hours? Ensuring you’re above the law but morally sound

pay cuts
The hand of a businessman removes a wooden block with the inscription salary. Salary reduction. Cuts of wages. Reduced profits and revenues. Financial crisis. career decline. decrease in profits

As many Australians transition back to the office, the way we work has changed. Aside from practical changes to layouts, many businesses are facing a challenging future as recession kicks in.

For many small businesses, they may have to make difficult decisions regarding their number of staff. Many leaders have reduced team hours, stood staff down, made redundancies or accessed personal savings to plug the gap. Whilst government assistance such as JobKeeper has helped to keep many people in jobs in the short term, this cannot continue forever, and employers need to make tough decisions. But what is the best option?

Firstly, it’s about the difference between a legal and a moral obligation. As a lawyer, my job is to advise on what is legal, but if at all possible, I’d urge people to act in a way that they personally feel comfortable with, and that will reflect well on them in the future. Whilst this isn’t always possible, if you can afford to do so not only will it position you favourably, but if employers are in any way seen to be taking advantage or acting unethically during challenging times, that trust is unlikely to be won back.

In essence, the rule book has not necessarily been torn up as a result of COVID-19, but we are seeing a normalcy of changing working conditions that has not been seen before.

Whilst pay cannot be reduced below the relevant industry award, enterprise agreement or the national minimum wage, in some circumstances, employers are able to introduce a reduction in pay. But as this changes the conditions of the employment contract, the employee must agree to this cut, and sign a fresh contract.

In most cases, a reduction in pay implies a reduction in work coming into the business, and, therefore, an employer may wish to cut working hours to reflect this. Whilst this is not ideal, it is preferable to the expectation that a team member works the same hours for less pay.

Employees do not have to agree to a pay cut, and if they do not, and it is enforced, the employer may be in a precarious place legally. One thing I would advise is that employers remain in regular communication with teams to let them know timeframes for returning to their original agreed salary.

Letting staff go is an alternative but a last option. However, in some cases, if you feel a team members’ role is not going to be crucial to the operation, it can be preferable than disrupting an entire workforce.

Perhaps consider offering voluntary redundancies to a group. This puts employees in a position of power, and some may welcome redundancy. Remember, contracts must be adhered to and any payout, including outstanding annual leave, must be fulfilled.

Redundancy can seem attractive to immediately cut costs from outgoings, but it can be extremely demoralising, so it’s worth exploring other options first. Also, don’t do anything rash – consider carefully whether you can afford as a business to let someone go – you don’t want to regret it and have to invest in a recruitment drive to replace them when things pick up. Consider mediation when an issue does arise as a time and cost-effective way to resolve issues and give people a voice.

Back in March 2020, the Fair Work Commission recommended exploring options that suited individual needs, whether it’s suggesting different forms of leave, temporary pay reductions, and of course looking into whether you qualify for Government support. If you want to come out the other side of this with engaged, supportive employees I’d strongly urge you to do all you can to prioritise their needs, so that you are a stronger organisation in the future.

Kayte Lewis, Director, Voice Lawyers