No Image Available

Ask the expert: Asking employees to reduce salary


Ask the expertIn addition to the redundancy process, an organisation is considering reducing the salaries of senior staff not at risk of redundancy. Esther Smith, partner at Thomas Eggar, and Martin Brewer, partner at Mills & Reeve, advise on whether this is both fair and acceptable.

The question:

Our company has recently lost a large percentage of its business/income. A number of roles have been identified as being at risk of redundancy; staff affected have been informed of our intention and our reasons behind the decision and the redundancy process is being followed.

As a further step towards maintaining the viability of the group, we are asking senior staff not identified as being at risk of redundancy to accept a 10% salary reduction. Our aim is to resolve the situation and return salaries to their current levels but this can’t be guaranteed.

Should a redundancy situation arise at any time thereafter, employees’ final salary will be deemed to be that paid prior to any reduction and final salary payment and holiday pay due paid at this rate. If staff are not in a position to reduce their salary, this will not affect their employment with the company in any way; if they can support our request we will confirm by letter of variation to their employment. Is this acceptable and fair?

Legal advice:

Esther Smith, partner, Thomas Eggar

Unfortunately in the current economic climate, companies have to take steps to cut overheads and reduce expenditure where they can. Asking staff to accept a reduction in salary in not an uncommon step to take in such situations and it sounds as if you are being reasonable about what you are doing and why.

It is common for an employer such as yourselves to make a request for staff to agree a salary reduction (sometimes employers look to reduce contractual hours of work when times are hard). However, as this would amount to a variation of contract, it can only be done with the employee’s agreement. However, you do not appear to be putting any undue pressure on the employees to agree the changes, which again is reasonable.

If, however, sufficient money cannot be saved through this route, it may well be that you have no alternative but to effect cost savings by cutting jobs, meaning that more people will need to be made redundant.

Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information, please visit Thomas Eggar.

* * *

Martin Brewer, partner, Mills & Reeve

Yes, this is ‘acceptable’ in the sense that there’s no legal bar to you doing this, it’s a matter of agreement between you and the affected staff. I suggest you will need to set all of this out in writing and get express agreement to the proposal.

What’s ‘fair’ is always a matter of debate. As the employer, you have an obligation to carry out redundancies fairly and reasonably. Part of the process will be considering ways to avoid dismissing staff as redundant. This may include staff agreeing to go voluntarily, to freeze recruitment, to forego a pay rise and an agreement to reduce pay can be part of that consideration.

Martin Brewer can be contacted at . For further information, please visit Mills & Reeve.

* * *

No Image Available