Can I impose a wage reduction?

My business is suffering from a cash flow problem and I am considering consulting with staff and imposing a temporary 30 per cent wage reduction for three months. I would then pay this back to them with an additional bonus. What should I consider?


My business is suffering from a cash flow problem and I am considering consulting with staff and imposing a temporary 30 per cent wage reduction for three months. I would then pay this back to them with an additional bonus. What should I consider?

The first thing you need to look at is your contracts to see what options are available to you. You cannot unilaterally impose a change in terms and conditions and pay is a fundamental part of the contract. You have to take a good look at the problem that you are trying to solve and see if it is possible to resolve this cash flow situation by making cuts elsewhere in the business.

Alternatively, if you know you will have resolved this issue in three months and have a surplus to allow you to pay bonuses could you not make arrangements with your bank to cover the shortfall for this period?

You need to consider that what you are suggesting is that your workforce in effect goes without pay for nearly one month and gives you a loan. In the current economic environment it is highly unlikely that this is something your employees could accommodate.

Your options are limited and will be affected by the amount of work you have coming in at the moment. If you have no shortage of work then you need your employees to carry out their work as normal. If you have a temporary reduction in the amount of work you need doing at the moment then you may want to consider whether or not you have the right to lay off some of your employees in your contract which may provide you with a temporary solution.

Consult with your staff about the situation and see what solutions anyone can put forward. It may be that you can resolve your problem with a combination of solutions. However, you cannot unilaterally impose this change and if your employees will not agree then you will have to consider your remaining options, which could include ending the contracts.

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