November 1, 2023
Can you force an employee to take a pay cut?
Can an employer legally ask an employee to take a pay cut? It’s a question I get asked by employers all the time. That’s not usually because they want to be mean or claw back money from their staff; it’s often down to a matter of survival. In many sectors, business currently isn’t what it was a year ago, and some companies simply can’t continue to pay out the same wage levels they have been.
With that in mind, this article looks at the legalities of whether or not you can ask an employee to work for less pay.
The baseline: An employer can’t cut pay without an employee’s consent
At a basic level, it’s illegal for employers in Australia to unilaterally cut an employee’s pay without their consent. In other words, you can ask, but they don’t have to accept – and there’s not much you can do about it.
Generally, you’ll always need the employee to agree. And you’ll need them to do this in writing. Otherwise, you’ll be breaking your contract with the employee and face the prospect of an unfair dismissal or redundancy claim – something that could prove far costlier than keeping the employee on at their current pay rate.
With that in mind, here’s how you should go about it, if need to cut your wages bill.
Don’t cut below the minimum rates
You always need to be mindful of an employee’s minimum pay. As a starting point every Australian employee is entitled to the National Minimum Wage (currently $23.23 an hour – the highest rate in the world). Beyond that, however, you also need to make sure you’re complying with the minimum conditions of any Award or agreement applying to your staff.
Go below these rates and you’re likely to face serious legal issues, including the prospect of heavy fines.
What about bonuses?
Bonuses are often a different matter. That’s because they usually come down to meeting key performance indicators. It’s always sensible to draft bonus agreements so that an element of it, is tied to the performance of the business or business unit, as well as the individual. That way, if times are genuinely tight and you haven’t met your business objectives, you’re not liable to pay out.
Reduce hours rather than pay
One way that could keep everyone happy is to reduce hours rather than pay. For instance, when the COVID pandemic first struck, it was quite common for employers to ask employees to work a three or four day week. Some employees actually preferred this arrangement, and remain on the same conditions today.
But, again, as with pay cuts, reducing the working hours of permanent employees, wouldn’t usually have been possible without their consent. If an employee had said, no – there was little an employer could do except dismiss them for operational reasons (and potentially face the cost of redundancy pay).
Many employees, however, decided to accept a four day working week, or reduced hours, rather than be without a job.
Can you cut a casual worker’s pay?
Casual workers have their minimum wages set in exactly the same way as permanent staff – i.e. through the National Minimum Standards, as well as Awards and Agreements. They also enjoy the same protections around pay rates. That said, the nature of their employment means they’re paid by the hour, rather than via a salary.
A genuine casual employee has no reasonable expectation of ongoing, regular work. That means you can usually vary their hours without their consent – something many employers will do when times are tough. The exception, however, is long-term casual employees. That’s someone who has been working the same pattern of hours over the past year or more.
Be upfront with employees
Whatever action you want to take, it’s always important that you communicate your situation to your staff to get your employees’ consent. In fact, many Awards and Agreements have formal consultation provisions that you’ll need to follow whenever you’re attempting to change an employees working conditions – sometimes even if it’s as much as changing their roster of hours.
Our experience is that most employees want what’s best in the long-term. If your business is suffering and you legitimately can’t keep paying the same rates, many employees will agree to having their employment conditions modified. The key, however, is to be upfront. Explain what is happening and why you need to take action. And work with the employees themselves to come up with a solution. You may be surprised by what you can achieve.
If you’d like to know more about implementing an office-first approach in your workplace, get in touch.