Payroll Savings

Coronavirus – Ways to reduce payroll

As you can imagine, I am still responding to a number of questions on the impact of the coronavirus on employers.

One common question is how employers can reduce payroll.

The purpose of this document is to set out the various options that are available. Some may not be suitable for your business or you may decide that a combination of a few options will be appropriate. Before taking any final decision, I would suggest that you contact me to obtain bespoke advice on your particular set of circumstances.

Employees with less than 2 years’ service

There are limited circumstances in which an employee with less than 2 years’ service can make a claim for unfair dismissal. Provided that decisions are fair and are not based on discriminatory reasons, or in response to an employee whistleblowing or asserting a statutory right, then the following measures could be taken with these employees: –

  • Dismissal (with notice or payment in lieu of notice)
  • Reduction in working hours
  • Reduction in pay

If you impose a reduction in pay or hours on an employee without giving notice, there is a risk that they will claim breach of contract but, in these uncertain times, I suspect that most employees will be happy to agree to such changes to remain in employment.

Where there is a contractual right to lay off staff or introduce short time working

If your contracts of employment include a clause entitling you to lay off employees or introduce short time working, you can enforce this clause by giving reasonable notice.

Lay off is where there is no work for an employee and short time working is where their weekly pay is less than half of their normal weekly pay.

Employees who are laid off are entitled to guaranteed statutory payments, but these are extremely low (£29 per day for a maximum of 5 days in any 3 month period).

If an employee is laid off or placed on short time working for a period of 4 weeks (or 6 weeks in any rolling period of 13 weeks), they have a right to resign and treat themselves as redundant. There is however a very specific procedure that they must follow.

Within 4 weeks of hitting the trigger points set out above, the employee must give written notice to the employer that they intend to claim redundancy. If the employer does not respond within 7 days of receiving the written notice, the employee can resign within the next 3 weeks and claim their statutory redundancy payment.

The employer can avoid this situation by responding to the initial notice within 7 days and stating that within the next 4 weeks they expect to return to normal working hours for a period of at least 13 weeks. The effect of this counter-notice is that the employee is unable to resign and claim statutory redundancy. They can still resign, but there will be no entitlement to any redundancy payment.

If the employer’s response subsequently proves to be untrue, the employee is able to apply to the employment tribunal for their statutory redundancy payment. Arguably, if the employer claims that they expect to return to normal working hours knowing it to be untrue, the employee may be able to establish that there was a breach of trust and confidence entitling them to resign and claim constructive dismissal. However, given the uncertain times that we are all facing, I believe that an employee will find it difficult to prove that the employer intentionally made an untrue statement. 

Where there is a contractual right to lay off staff or introduce short time working

It is generally believed that the government may introduce new legislation allowing all employers to temporarily lay off staff, even where there is no contractual entitlement to do so. Until such time, there are still options for employers with no contractual right.

First and foremost, employers should communicate with employees. Again, given the unique circumstances that we find ourselves in, employees will not be surprised to hear that businesses are struggling.

It is possible to reach agreement with employees to introduce lay off or short time working on a temporary basis. I anticipate that many employees would prefer these options over redundancy.

If agreement is reached, it is vital that the arrangements are confirmed in writing.

Reduced salary

There may be some employers who still need employees to work the same hours, despite the fact that they cannot continue to pay at the same rate. 

It is very rare for a contract of employment to allow for a general reduction in salary. As such, employers will need to obtain agreement from employees if they want to reduce pay. Ideally, pay should be reduced at the same rate across the whole business, provided that the national minimum wage rate is paid as an absolute minimum. Staff will want to be reassured that senior managers will also accept a pay cut and this is certainly not a time for directors to be arriving at work with smart new cars (believe me, it does happen!).

Again, any agreement reached with staff for a pay reduction must be confirmed in writing. Ideally, all staff should be required to sign to confirm acceptance.


There will be some businesses that simply will not be in a position to retain all staff. In these circumstances, redundancy may be the only suitable option.

You will be aware that employers are required to consult with employees in circumstances where they propose to make people redundant. The purpose of this consultation is to try and avoid redundancy. Occasionally this can lead to agreement for reduced working hours, reduced pay, etc in where employees were initially reluctant to agree.

The redundancy consultation process must be for a reasonable period. If employers anticipate making more than 20 people redundant within a period of 90 days, consultation must be for a minimum of 30 days. Where the employers anticipate making more than 100 people redundant within a 90-day period, consultation must be for a minimum of 45 days.

It is possible to reduce these timescales if special circumstances exist. Tribunals have been very reluctant to allow employers to rely on this exemption but at the moment, and at the date that is document is produced, there may be an argument that the coronavirus and the impact that it has had on some businesses would amount to a sudden disaster entitling employers to rely on this exemption.

Clearly, over the coming weeks, that argument would be weakened as the tribunals may determine that any subsequent redundancies made were foreseeable and proper consultation should have taken place.

In any event, this exemption does not allow employers to make redundancies without any consultation. The employer must still act reasonably and consult, albeit for a shorter period.

Employers seeking to rely on the exemption should be aware that if a tribunal does not accept their argument, all employees who are made redundant without the proper consultation would be entitled to a protective award that can be substantial.

You will appreciate that the implications of getting these procedures wrong can be significant.  Please do not hesitate to contact me if you have any queries or require any advice.

Mobile: 07764 764806

All information included in this document is up to date at 12 noon on 17th March 2020. The situation is changing on a daily basis so please contact me if you require any updates.