Can employees be asked to agree to a (temporary) pay cut or the deferred payment of a portion of their salary?
In order to avoid dismissals due to the financial crisis, employers may be considering various ways of reducing salary costs.
Thus, under certain conditions, it may be feasible to temporarily cut pay, possibly accompanied by a reduction in working time.
A percentage pay cut can be provided for in (i) a company-level collective bargaining agreement between the unions and the employer (which is automatically binding on all employees as from its filing date with the competent authorities), (ii) a collective arrangement approved by all employees, or (iii) individual agreements with the employees concerned. Please note in this regard that the wording of the agreement or arrangement is very important and, therefore, precise drafting is of the essence.
However, a pay cut is without prejudice to the indexation of salary to keep pace with inflation. Indexation is mandatory and must be implemented, although the rate varies from one industry to another. Thus, after the application of indexation, a voluntary arrangement or collective bargaining agreement can be reached with the employees, stipulating that the latter temporarily waive their pay rise or agree to a temporary pay cut. In this way, dismissals can be avoided.
It should be kept in mind, however, that such measures will affect the employees’ pension plans and holiday pay. Indeed, a pay cut means less money in the employees' pension plans and less holiday pay the coming year. On the other hand, a pay cut will not affect the number of holidays to which the employees are entitled, unless it is accompanied by a reduction in working time.
Yet another way of reducing salary costs is to defer the payment of (a portion of) salary. Once again, in order to implement such a measure, it’s important to obtain the employees' consent in advance. Otherwise, it could be considered a constructive dismissal. Of course, the employees will be more likely to consent if the deferral relates to variable salary, such as bonuses. If the payment will be made later the same year, deferral will not affect the employees' pension rights and holiday pay. Finally, the payment schedule for social security contributions should be kept in mind.