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Reducing Employees wages/salary – and Gov. Covid-19 wages subsidy scheme

Ani Bennett, April 2020

Be aware! As an employer you cannot automatically reduce an employee's wages/salary - you must follow a legal process first.

Even if you get the wage subsidy, that doesn't automatically mean you can reduce employee wages/salary overnight.

  1. Check the employment agreement or work policies. Do they have a clause that allows reduction in employees wage/salary? Usually you must consult with the employee first, consider and respond to their feedback (consider feedback at least overnight, don't make the decision on the same day). Then make the change after giving them some notice (often the clause says 1 week notice – but check the employment agreement or policy).
  2. Talk to your employees, ask if they agree to this wage reduction. E.g. do they agree to the wage reduction for the 12 week period? If they agree, record that in writing. Remember the business must have had a least a 30% revenue drop attributable to COVID-19. You must make best efforts to top up wages/salary to 80% of normal rates. If you can’t afford to do that you must be able to prove that later on (i.e. have the financial records to show the min. 30% drop in revenue and that the business couldn't afford the 80% top up).
  3. If your employees don't agree to the wage reduction at first and you DO have a clause in the employment agreement or work polices that allow you to reduce their wages/salary – follow the process in the employment agreement and/or policy.
  4. If your employees don't agree to the wage reduction at first and you DON'T have clause in the employment agreement or work policies to reduce wages/salary - then you may have to follow a restructure process. For example – a restructure proposal to change the role to a role with a reduced wage. You must follow a full restructuring process – this can be as simple as a "2 letter, one meeting" process. Get proper employment legal advice to do this. The process is relatively easy if you set it up properly.

Most of all, take a breath and pause. Don’t panic. Rushed decisions can and will lead to personal grievance claims in the future. Do your best to remain calm and kind and communicate with your employees. Those employers that do, will be able to keep their valuable staff.

As now for the usual lawyer caveats 😊. This is not specific legal advice to you or your business, don’t rely on it as if it is. I need to know the specifics of your circumstances before I can give you formal legal advice. This is general guidance in general circumstances and as at the situation on the date of this post (2 April 2020). If you wish to engage me formally as your employment lawyer, please contact me to discuss. I'm open for business through-out the current crisis.

Stay safe out there Aotearoa. Mā te Atua koutou e manaaki.

Tauranga Chambers:

Jackson Reeves Lawyers Building
31 Hamilton Street

Waihi Chambers:

Clark & Gay Lawyers Building
61 Seddon Street