Can employers reduce the salaries of those that choose to work remotely and are there implications of doing so?

By Tim Gofton, Royds Withy King

Many workers now want to continue working remotely permanently. However, some employers are looking to reduce salaries for staff that opt to work full-time remotely outside of the often expensive cities in which their offices are based. The thinking goes that the cut in pay would be offset by the drop in living expenses. But is it legally possible to vary salaries for remote workers? Perhaps more importantly, what are the possible effects on recruitment and other risks associated with this kind of salary reduction?

An employer cannot unilaterally reduce salaries without either staff consent, the contractual right to do so, or without consent for a very good reason. Contractual right aside (which will be very rare), to unilaterally reduce salaries without consent or good reason will be a breach of contract. Employers who have breached the employment contracts may face unfair dismissal claims if the staff choose to resign or ‘stand and sue’ claims from staff who chose to remain in role.

If an employer dismisses and re-engages staff to work remotely on different pay, employers also face the possibility of failure to collectively consult claims if they dismiss 20 or more staff in a 90-day period but don’t collectively consult properly.

Dismissal and re-engagement is also a risky strategy in today’s workplace. There may well be negative PR implications to such a move. There are also likely to very significant problems in persuading an Employment Tribunal that it was reasonable to dismiss someone and re-engage them on a lower salary for doing what they have done successfully for many months during the pandemic in the remote locations. Consent to change is far more preferrable.

Having or getting the contractual right to reduce staff pay is one thing. The possible indirect consequences of introducing a policy of reducing pay for remote working is another. The consequences for employers which may not arise for a while could include:

• Some sectors struggle with recruitment. Many candidates expect remote working. Paying less for this flexibility could deter candidates and drive them to competitors;
• Paying staff in the regions less could impact diversity in the workplace;
• Being paid less for the same job could foster a feeling of resentment. Some staff may feel hard done by if they are doing the same work and hours as better paid colleagues;
• If there is a higher proportion of women needing to work remotely because of childcare issues (and so get less pay for doing it), this could be indirect sex discrimination. It may also have an impact on a business’s gender pay gap reporting figures; and
• Staff who do not have cheaper cost of living may resent colleagues doing the same job for the same money if their bills are lower yet they get the same salary.

London weighting

This is not to say however that a reduction in salary based on geographical location shouldn’t be implemented. City weighting has been around for a long time so there is precedent. The London weighting is, for example, a well-established principle.

This buy-in may be possible. There is evidence to suggest that employees see the benefit of moving out of expensive inner-city regions for the savings and quality of life benefits that come with permanently working in other areas and not having to attend the office. These staff may give their consent to a pay drop. If an employer offers one-off payments to encourage switching to a lower salary for fully remote working, this could further help the uptake of staff agreeing to a reduction in salary. One off payments could, for example, help pay for more expensive broadband or home office start-ups.

Implementing a reduction in pay for remote working is not to be taken lightly by employers. It may be able to be done but will need careful planning. It will take well planned, meaningful and transparent consultation with staff to get their buy-in to these salary drops though. Issues like staff resentment and possible discrimination claims will have to be carefully thought through and the risks analysed in each workplace.

As ever, with fundamental changes in the workplace, communication with staff is likely to be the key to any successful transition.

Tim Gofton is a Senior Associate in the Employment team at Royds Withy King. He can be reached by email: tim.gofton@roydswithyking.com. Visit www.roydswithyking.com