What Does The Law Say on Salary Reduction?

Case Study: –

During this tough financial climate, one of our clients was looking to restructure his sales department by reducing the monthly gross pay & increasing the commission allowance.

Question: –

Legally, can an employer reduce an employee’s salary downwards?

Verdict: –

Under the country’s Labour laws, an employee’s pay cannot be reduced without discussions between the employee and the employer. Even in situations where a company is facing financial problems, the two parties must still discuss and agree.

It is important to recognize that an employment contract cannot be unilaterally varied by one party without the consent of the other.

If an employer attempts to impose a reduction in an employee’s salary without their consent, then this entitles the employee either to resign and claim constructive unfair dismissal or continue to work “under protest” but sue for compensation for the losses suffered as a result of the reduction in salary.

If an employer is contemplating reducing employees’ salaries, then they would be best advised against attempting to seek agreement with their workforce so that such a change can be implemented by consent.

In the current economic environment, employees are likely to agree to a reduction in salary if this is seen as an alternative to being made redundant or being under the threat of redundancy.

Ultimately, if an employee refuses to agree to a reduction in salary, then an employer has the option of terminating the contract of employment by giving them their contractual notice and then offering a new contract on a reduced salary. For Talor Made Human Resource Solution, send an email to  – info@summitrecruitment-search.com