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Can I reduce the pay of my remote workers?

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Pay rates for remote workers have been in the news recently after Google announced it may cut the pay of US staff who work from home.  It was also reported that a UK Cabinet minister argued that civil servants who work from home have effectively received a de facto pay raise and should not have the same terms of employment as those who physically come into work. These scenarios may have caused employers to review the reasons why this may be a viable option for their business if they are looking at saving costs and the legal position as to whether they can reduce the pay of employees who choose to permanently work from home. Our Employment Law team discusses the challenges posed by introducing such a pay cut and the effects it could have on businesses.

Reducing employees’ pay

Unilaterally reducing your employees’ pay would constitute a breach of contract and would likely result in a claim for unlawful deduction of wages or constructive dismissal if the employee resigns. You can reduce an employee’s wages if they agree to the reduction, though getting their agreement is unlikely if their working hours and responsibilities remain the same.

Another option is to dismiss and rehire the employee on a new employment contract with a reduced salary. However, unless you can show that there was a sound business reason for the dismissal and re-engagement and that you followed a fair procedure, an Employment Tribunal may find that the dismissal was unfair. If you plan to dismiss more than 20 employees, collective consultation is required. The “fire and rehire” strategy also carries a risk that employees will decide to leave your business and work elsewhere. At a time when many businesses are struggling to recruit, employers may offer homeworking as an incentive to employees to join their business.

As an alternative to reducing the pay of current employees, some employers may consider offering a lower salary to new recruits who opt to work from home. However, this strategy also carries some risks and drawbacks as discussed below.

Drawbacks of reducing pay for home workers

Paying a lower salary to employees who work from home risks creating a two-tiered workforce, sending the message to your workforce that one group of employees is more valuable than the other. This can hurt employee morale and foster a resentful work culture, especially among employees who receive different salaries but do very similar roles.

Employees who return to the workplace to avoid taking a pay cut may feel bullied into returning and resentful about having to forfeit the benefits that working from home affords, such as extra time with their family and a better work-life balance. This may encourage them to look for employment elsewhere.

Equality considerations when reducing pay

Differing pay scales could also exacerbate pay disparities in your workforce. You could be opening your organisation up to equal pay claims if the office-based and home-based roles are clearly comparable or if it is found that a majority of the people working from home – and thus receiving less pay – all share a protected characteristic (for example, if most are women). You may end up spending more funds defending equal pay claims than you save by reducing employees’ salaries.

Cost cutting alternatives to reducing employee pay

It is understandable that employers may be required to cut costs, especially now when businesses are still recovering from the economic impact of the pandemic. However, allowing or even encouraging homeworking can allow businesses to save money in other ways such as:

  • Reducing office space;
  • Reduced utility bills;
  • Reduction in travel expenses claimed.

Rather than entice employees back to the office with the threat of reduced pay, you may instead try devising strategies to incorporate home working or hybrid working in your business going forward.

Reducing pay for employees who work remotely is unlikely to be worth the increased risk of legal claims and the harm to employee morale and business reputation. If you have questions about working from home arrangements, contact our Employment Law Team on 023 8071 7717 or email employment@warnergoodman.co.uk.

To receive regular Employment Law updates from the team regarding recent tribunal cases and legislation updates, you can subscribe to our weekly Employment Law Newsletter by completing our subscription form or emailing us at events@warnergoodman.co.uk

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.