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Consider contracts before cutbacks

By Michelle Pittorino

In the current economic climate, a large number of Australian business are reducing costs to remain viable. 

Before looking to reduce their workforce, businesses should consider options to manage employee wages and benefits. 

Some skilful negotiating of employee’s contract may help retain jobs and sustain the business. Potential options are outlined below:

1. Varying or removing staff benefits 

Many businesses provide employees with various benefits (in addition to wages and minimum entitlements) as a means of attracting and retaining talented staff when the economy is strong. Such benefits may include: 

  • employer-provided or subsidised health insurance or gym memberships/fitness classes 
  • fruit, snacks, tea and coffee in the lunch room 
  • additional superannuation contributions 
  • mobile phones, laptop computers or vehicles. 

Removal of certain benefits, even if only a temporary solution, may help to mitigate the effects of a downturn.  

If this option is being explored, it is important to first look at whether any of these benefits are provided for in an employee’s contract of employment, enterprise agreement or a workplace policy. 

2. Varying or removing a bonus scheme or incentive payment 

If a bonus or incentive scheme has been paid regularly to an employee for a significant period of time, and the employee has a reasonable expectation of receiving this payment in future, employers would need to seek agreement from individual employees to remove or vary this entitlement. 

Again, when negotiating with the employee it should be explained that this measure is being considered as part of a cost-cutting exercise based on the economic realities being faced by the business. 

Employers considering reducing or removing a bonus scheme or incentive payment should check employment contracts, enterprise agreements and policies for terms allowing for the variation or cessation of such benefits.

3. Freezing or delaying wage increases

If wage increases are guaranteed through employment contracts or enterprise agreements, employers would need to look for a provision which allows a temporary or indefinite freeze in wage increases and notify affected employees. 

If there is no such provision in the contract or agreement, employers would need to seek agreement to vary the contract or agreement as discussed in previous sections of this article.  

Similarly, if a certain wage increase has been guaranteed through custom and practice, employers will need to seek agreement from affected individuals to implement a freeze. 

If wage increases are generally offered annually but no set amount is guaranteed, or it is based on the performance of the company, employers should still take steps to manage employee wage expectations during this time. 

Meetings may be held to update staff on the state of the economy and the performance of the company, with a reminder that steps need to be taken to ensure the company’s ongoing sustainability.  

Managers should be trained in holding conversations with their direct reports to discuss this in further detail and address the concerns of their teams. 

4. Reducing wages

Reducing wages would constitute a variation to the individual employment contract (whether or not a written contract exists) so agreement would need to be obtained from affected employees before any changes.  

Employers must also ensure that the reduction in wages does not result in wages falling below award or agreement minimums. 

It can be difficult to obtain agreement from employees to reduce their wages and often employers are assisted when they lead by example, starting with executives and senior personnel salaries before moving onto the broader workforce. 

Consultation with affected employees is essential, as a reduction in status or pay is considered a major change which will have a significant affect on employees.  

It is advisable to approach the conversation with the wider group to start with, and explain that due to the economic downturn impacting the business, cost savings are crucial, and as such this is being considered as a measure to preserve jobs. 

It may also be explained to the group that if agreement is not reached across the group, the wage reductions will not go ahead.  

However, other essential steps will be taken to preserve the business, which may involve redundancies. It is important to approach the matter as sensitively as possible, and not use redundancies as a threat in order to obtain employee agreement. 

Once the broader group has been notified, individual discussions can take place to obtain agreement from each affected individual.  

These discussions will take some time depending on the size of the workforce and may not be a ‘quick fix’. 

For those who are reluctant to agree to a variation in wages, some negotiation may need to take place. 

Details for each option 

Greater detail about each option is provided by CCIWA’s Guide to Significant Workplace Change and Transfer of Business. The guide also contains checklists, pro-forma correspondence and letters plus guidance notes to assist employers implementing restructure, redundancies or considering cost cutting measures. 

For more information contact the Employee Relations Advice Centre on (08) 9365 7660 or [email protected]. 

In the current economic climate, a large number of Australian business are reducing costs to remain viable. 

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