Some employers may look at reducing employees’ salaries or bonuses in tough financial times as an alternative to terminating staff. However, there is a lot of uncertainty regarding whether it could be considered a breach of contract, or a violation of employee’s workplace rights.
Can you reduce an employee’s salary?
Awards, enterprise agreements and the National Employment Standards (NES) set minimum standards of pay. It would therefore, certainly be a breach of the National Minimum Wage Oder if an employer reduced an employee’s salary to less than the minimum weekly rate.
Employers should always review their employee’s employment contract before deciding to reduce pays. If the contract includes a provision that allows the employer to undertake an annual performance review, and the employee is not performing accordingly, this may be justification for reducing the employee’s pay. Particularly if the provision states a review of pay as part of the annual performance review process.
If an employee is covered by an award, then the award will generally mandate the rate of pay which the employee is entitled to as a consequence of their employment (for example, penalty rates, overtime, breaks and allowances).
In Australia, an employment contract cannot remove employee entitlements provided to the employees in the NES, under the Fair Work Act. However, if the rate of pay afforded to the employee exceeds the minimum amount under the award, and any excess is reasonably sufficient to compensate the employee for the loss of their entitlements, then reductions to employee pay may be made.
If an employee is not covered by an Award or a workplace agreement, an employer cannot reduce their pay if it results in the employee receiving less than the national minimum wage. Australia’s minimum wage is currently $18.93 per hour, or $719.20 per 38-hour week (before tax). Please note, this minimum wage is reviewed every year.
Employers should always seek professional advice prior to any attempts to reduce pay. HRGS can advise on the appropriate steps to take and whether or not you would be in breach of contract or the employee’s workplace rights.
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