Introduction to this document

Letter seeking agreement to reduce pay to avoid redundancies

Use our letter to seek employees’ agreement to reduce their salaries in order to avoid staff redundancies. Make sure you deal with the situation sensitively and fairly and be prepared for some employees to say no.

Another option

When the business is suffering financially, you may explore redundancy as a way of saving costs. However, whilst making employees redundant because of an economic downturn may help you to survive in the short term, it can have a long-term detrimental effect on the viability of your business, particularly when work picks up again. Therefore, it’s worth considering alternatives to redundancy, one of which may be asking your staff to take a pay cut. There are a number of advantages to considering a consensual pay cut rather than redundancy, including:

  1. It can save the management time and financial costs of going through a redundancy programme.
  2. You won’t need to carry out a new recruitment drive should work pick up and it will help ensure you don’t lose the skills and expertise that your current employees have to offer.
  3. If there are no, or fewer, redundancy dismissals, it reduces the risk of unfair dismissal claims.

Conversely, employees may not be willing to accept a pay reduction, particularly if it’s substantial or permanent, and it may not help with staff morale in the short term.

Implementing pay cuts

You can only reduce pay with an employee’s express agreement, whether this is on a permanent or a temporary basis. So consult at a very early stage to ensure your employees fully understand why you are making the proposal. Employees are more likely to agree to a pay cut if it’s for a temporary, defined period only, it’s not a significant reduction, the business position is properly explained to them and they know it’s being considered as an alternative to redundancy to try to save people’s jobs. Our Letter Seeking Agreement to Reduce Pay to Avoid Redundancies assumes you’ve already had a meeting with the employee to discuss your proposals. It then summarises what your pay reduction proposal is and why, i.e. how much their salary would reduce to and from when and that you’re considering the arrangement in the hope of avoiding redundancy. We’ve also given you the option of proposing the reduction for a temporary period only, i.e. until a specified date, after which you can then review your business position to see whether the economic situation has improved. Finally, our letter asks the employee to sign the acceptance slip if they’re willing to accept the proposed pay reduction.

No unilateral variation

Any attempt to impose a reduction in pay without consent will amount to a fundamental breach of contract, enabling the employee to resign and claim constructive dismissal if they have two years’ continuity of employment. Alternatively, they could claim for an unlawful deduction from wages or they could issue a claim for damages for breach of contract, regardless of the length of their employment.