In our ‘5 ways in 5 days’ series, we are looking at options to control labour costs which don’t involve implementing redundancies. Today, we are looking at:
- changing employees’ working hours;
- reducing overtime; and
- putting employees on sabbaticals and secondments.
CHANGING AN EMPLOYEE’S HOURS
Hours of work are a fundamental aspect of the working arrangements referred to in contracts of employment or enterprise agreements. Indeed, it is common for enterprise agreements to specify the number of working hours per week, and sometimes the particular roster arrangements under which hours will be worked.
In tough economic times, one way to manage labour costs is to reduce or modify employees’ working hours in order to:
- reduce the total number of hours worked, and/or
- have employees work their hours at times which are subject to lower penalty/overtime rates.
During the GFC, many businesses, especially in Europe, adopted temporarily reduced working weeks or temporary plant closures in order to deal with reduced demand for products and services (often because government subsidies made such options attractive). For example, British Airways, Ford, Honda and JCB offered reduced hours of work, and KPMG offered a four-day week to staff, with more than 3 in 4 workers signing up.
While it is possible for an employer to request that an employee change or reduce working hours, the employer may need to go through a process to achieve that result. For example:
- if an employee is engaged to work ‘full time’, the employer may need to obtain the employees consent to reduce those hours (with the consequent reduction in pay)
- awards or enterprise agreements may impose processes (including the giving of a period of notice) for changes to the number of hours worked or the roster arrangements on which the hours are worked
- awards or enterprise agreements may enable individual employees and the employer to agree on an individual flexibility arrangement that involves the employee working fewer or different hours – provided it leaves the employee ‘better off overall’
- awards and new enterprise agreements must now include a clause that requires an employer to consult with employees about changes to an employee’s regular roster or ordinary hours of work, including by:
- providing information to employees about the change;
- inviting employees to give their views about the impact of the change; and
- considering any views given by the employees about the impact.
Communicating the nature of, and need for the changes, is important to ensure that employees come ‘along for the ride’ in relation to this option – especially as it may substantially reduce their income. For example, working ‘flexibly’ in this way may enable the organisation to retain staff while cutting costs.
Many businesses ‘run on overtime’. That is, they rely on employees regularly working overtime hours above and beyond their ordinary hours. This can be an expensive manner of operation, due to the higher rates of pay that apply to the overtime hours. It may be possible for employers to reduce overtime work or cease it entirely with significant cost advantages, for instance by rearranging work schedules so that production normally completed during overtime hours is instead done during ‘ordinary hours’.
There are a number of issues that have to be borne in mind when considering this alternative:
- enterprise agreements may include particular arrangements in relation to overtime. For instance, some awards and agreements have overtime ‘built into’ an employee’s roster arrangements. That may mean that it is necessary to either vary the agreement itself or, at least, to consult with employees about the impacts that the change will have on them;
- where overtime is worked purely at the request of the employer, but has nevertheless been worked ‘regularly’ by employees, reducing the volume of that work can have significant impacts on employees’ take-home pay; and
- employees may have contractual entitlements to be offered a particular volume of overtime work – changing this would require the employee’s consent.
Of course, where such an alternative is adopted, there are some practical issues to deal with, including that ceasing overtime arrangements may make it more difficult for an employer to service particular customer needs and might reduce the ‘nimbleness’ of the organisation.
SABBATICALS AND SECONDMENTS
Gathering a wide range of experience is often a goal of employees in their first few years in the workforce. One of the ways in which employers can offer this to employees while retaining their skills is via ‘secondments’ to other organisations (often clients). This is particularly prevalent in the professional services industry. Equally, after a number of years in the workforce, many employees look forward to a ‘well-earned rest’, or opportunity to explore a passion that is not possible while their ‘nose is to the grindstone’ at work. An example of this took place during the GFC when BT offered staff up to a year’s holiday if they agreed to take a 75 per cent pay cut.
Both of these methods can be brought to bear by an employer in tough economic conditions in order to help manage costs, while not losing the employee’s skills and talents. Nevertheless, there are some points to remember when considering these options:
- an employer may not have the ‘right’ to place an employee on sabbatical or secondment to another organisation. Typically, both options would require an employee’s consent although some contracts of employment may allow the employer to direct the employee to undertake either of these activities;
- depending on the relevant contractual provision, an employee may still be entitled to some payment during the period of a sabbatical; and
- secondments will reduce the number of staff available to work on short notice (for example, if demand picks up) so employers should factor this into decision-making.