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Salary Reduction and short term working in the current climate

Wednesday 8th April 2009

With cash tight and markets shrinking, employers are looking at all their overheads with a view to cutting unnecessary costs wherever possible.

For those of us old (or should I say mature!) enough to remember previous recessions, this one has a different hue about it. Employers are aware that a recruitment crisis isn’t too far behind them. They do not want to lose skills when this can be avoided. In the past, employers’ main response to downturn was redundancy. Many are looking at alternatives.In short these are:-

  1. Agreed reduction in salaries
  2. Short term working and Lay offs

Salary Reduction

This time round, the preferred choice of employers has been agreed salary reduction. A number of my clients have taken this option and have been buoyed up by the positive response from their staff. How is this done? Well, a reduction in salary / pay is a variation of the contract of employment. Employers must seek agreement from employees to adopt this measure. In my experience this has been forthcoming without exception. The employer serves notice on the employees of his intention / proposals. A collective meeting often follows where reasons for the change can be put forward in depth. The employee then should be requested to sign a note agreeing to the variation

If the employee refuses?

The employer may then give the employee one month’s notice on the change in terms. At the end of that period, if there is still a refusal, the employer faces dismissal for "some other substantial reason" justifying dismissal as it is deemed to be a business reorganisation. Provided an employer can demonstrate that the reasons for the change are justified, then this will be a fair dismissal.

Lay Offs and Short Term working

The statutory provisions relating to short term working and lay offs are extremely complex and have been described by the House of Lords as "labyrinthine".Whilst an employer may put employees on short term work, if this endures for a period of 4 weeks or a total of 4 weeks in 6, then the employee can "elect" to treat this as a redundancy dismissal and claim a redundancy payment. It should be noted an employer cannot lay off where the employees contract does not depend upon he or she being provided with work which is uncommon these days. In all cases, you should seek expert advice.

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David Southern - Partner at Marsden Rawsthorn LLP - Head of Employment

Author: Administrator

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