SG Writes: Due to cash flow changes, we are thinking of changing our payroll from weekly to monthly. Is there a legal period of notice that employees must be given before the change takes place and do I need to consult them beforehand?
Most businesses will find themselves facing cash flow issues at some point in their lifetime. This may be resolved when payment of the next bill is received but longer term financial issues can lead to employers trying to find a long-term solution. Wages are the largest bill companies have to pay so making changes to this, such as reducing changing the frequency of this payment can help to balance the accounts.
Pay dates and the frequency of pay are generally contained in the employee’s contract of employment. Therefore, any changes to the frequency of pay becomes a change to the employee’s contractual terms and conditions. This is significant because employers cannot make unilateral changes to contractual terms so they can’t just change the date to suit them. Any unilateral change is a breach of contract which could lead to employees making a claim for damages at tribunal. The affected employees can even resign in response to the change and make a claim for constructive dismissal.
Changes can be made to contractual pay terms where the agreement of the affected employees is gained. This will usually require meeting with the employees and explaining the reason for the change, what will happen if the change doesn’t take place and whether the employees will be offered an incentive for their agreement. As the change will have a financial impact in the interim, a helpful incentive could be to provide a company loan for the first month or agree an advancement of wages which can be paid back at a low rate from their future wages. Any agreement to the change needs to be documented. A signed and dated form or notice setting out the change is important evidence should any disputes arise in the future.
Where the employees don’t agree to the change, the employer will have to carry out a consultation process with employees. The amount of consultation required, and the process to follow, depends on the number of employees affected by the change. In order to consult properly, the employer will have to formulate a business case which sets out the need for the change.
Caution needs to exercised where a transfer situation has occurred before the pay change. In these circumstances, any changes to terms and conditions of the transferred employees will be unlawful unless there is an economic, technical or organisational reason for the change which results in a change in the workplace.