Does permanent home working justify cutting pay?

With remote working reducing employee’s work-related costs, Paida Dube explores whether this provides businesses with an opportunity to review salaries

As the UK emerges from the pandemic, employers can at last start to make long-term plans for working arrangements. 

With wide-scale adoption of flexible and home working expected across the economy, the question arises whether this opens employers up to lower salaries of employees who will be working from home permanently.

For some employers, salary reviews may be a financial necessity to avoid redundancies. Others, however, may consider taking the opportunity to renegotiate wages on the basis that homeworking has lowered work-related outgoings for employees. 

Employees working from home have no travel costs. They are also likely to no longer have the daily expense of the Pret sandwich and Costa coffee or have to maintain a work wardrobe to the same extent as when they were in the workplace full time. We are also seeing workers move out of expensive city areas, meaning a lower cost of living. 

Yet employers should consider that these savings may well be offset, to some degree at least, by increases in an employee’s household expenditure, such as heating, broadband and electricity bills. And any reduction in wages may also not sit well with workers if the company itself has benefited from home working by reducing premises costs and overheads.

Can employers reduce salaries?

Salary levels are contractual terms that cannot be changed without the employee’s prior agreement. Consent is crucial to the employer’s decision. Some employees may be open to the change; for example, if there has been a change to the worker’s role and contract terms are being renegotiated. 

Likewise, some employees may seek to reduce their hours based on childcare or other family responsibilities that have arisen during the pandemic, while others may be happy with a pay cut as quid pro quo for maintaining new-found work/life balance.

In the current economic environment, some employees may also agree to a reduction on the basis that a job is better than no job. But even in a financially challenging environment, employers should be prepared for any possibility of a salary reduction to be met with either resistance or even an outright no. 

Where the employee does not consent, employers should consider their options carefully to avoid legal risk and reputational backlash. British Gas was criticised recently for taking a 'fire and rehire' approach, effectively reengaging certain workers on less favourable terms. 

If you hire sponsored visa workers, remember that they must be paid the salary as stated on their Certificate of Sponsorship, and this must be at or above the relevant minimum salary threshold under the immigration rules.

Guidance for employers

If you are considering reviewing salaries within your organisation, communication will be key. Prepare for discussion with affected employees, explain your rationale and listen to your employees.

For example, financial pressures could be dealt with through a temporary variation and reduced salary, until business picks up again, for a defined period. This may give rise to some movement, especially where employees love their jobs and are understanding that the economy was hit hard by the pandemic, and there is sight of the business picking up again soon. Where such variations are agreed, from a practical position, this should always be documented and reviewed accordingly. 

It may also help to consider alternative solutions. Rather than looking at pay, you could consider working hours. The standard nine-to-five model may not be suitable for those working from home, and it may be more appropriate to have a set of core hours and to allow some level of flexibility, provided you are clear as to what is expected from the employee in terms of performance targets and objectives. Remember also that the Working Time Regulations apply to working from home in the same way as they do in the workplace. 

Where workers have relocated and the London Living Wage or weighting no longer applies, employers should consider their options carefully, for example, deciding against a reduction in pay and allowances as a means of justifying future pay freezes. 

Employers are also advised to review their expenses policies, and ensure areas such as travel from the workplace and travel from home are up to date. You should expect movement in market salary levels over time as employers reassess their offers while workers set their expectations. 

It will be also interesting to see how remote working as a standard arrangement impacts wage levels in general; with competition for jobs opening up to a wider pool of candidates beyond a certain region (or country), will we see wages fall, negating pressure to review existing workers’ terms?

In any event, employers are advised to navigate salary changes with caution, giving full consideration to the legal and HR implications before moving to vary contractual terms. 

Paida Dube is an employment lawyer at employer solutions law firm DavidsonMorris