What does reduction of hours mean?
Your formal obligations depend on the conditions under which your staff members are employed. Where a staff member is employed as a casual, hours can be readily changed in response to changing business needs. In contrast, reducing the hours of a full-time employee to that of a part-time position comprises a change to their contract.
You are able to reduce an employee’s contracted hours if they agree to do so. Even in time’s of extraordinary circumstance like COVID-19, you and your employee must reach an agreement regarding the reduction, and you’ll need to get that agreement in writing. If an employee’s hours are reduced illegally, you can face up to $12,000 in fines.
Reasons for reducing hours.
If you’re going to reduce an employee’s hours, you must make sure the reasons are ethical. If your business needs to engage in cost-cutting due to a business downturn related to COVID-19, that would be seen as absolutely reasonable – especially if the reduction is only temporary.
Employers seeking to reduce the hours of work of employees due to business downturn in an attempt to avert potential redundancies could be beneficial to both employers and employees alike.
All in This Together
As businesses continue to face uncertain economic times, some are reducing employee hours in an effort to keep all their staff on while also addressing straightened business circumstances. This can be a good way to keep valued staff in the business and teams together while the practice works to return to a stronger economic footing.
However, employers do need to ensure that proper processes are followed and that changes are agreed to and documented. Effective communication is also vital, as in so many other business and workplace situations. When staff members understand the context in which their hours – and therefore income – are reduced, they are more likely to pull together and work with you to improve the business’s situation.
Employers should provide a written description of the proposed changes and, if the employee agrees, there needs to be an acceptance in writing. As an employer you cannot simply amend the contract without your employee’s consent – to do so is to risk a breach of contract claim. If the employee agrees to the changes, the revised arrangement should be properly documented and signed by both employer and employee.
It is also helpful to give staff a clear understanding of the context in which an employee’s hours would increase or return to full time, and even what role they could play in assisting the business with this.
You also need to be aware of your obligations should employees elect to take redundancy rather than agreeing to reduced hours.
Reduction of Hours vs Redundancy.
It is important to highlight the difference between temporary and permanent reductions in hours. An employer who seeks to reduce hours of work on a permanent basis may be triggering redundancy of employment and all of the processes associated with this move.
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.
When a full-time employee’s hours are reduced to part-time due to a downturn in business, the employee is essentially been given two choices:
- Accept the part-time role and stay on with the company. In this context, they must be given the appropriate notice as per the award and the national employment standards.
- If the employee does not wish to go part-time then they need to be paid redundancy payments.
In most cases, the most you can reduce hours by is 40% before it would be considered a redundancy.
Before considering redundancy, please read this helpful article Five Alternatives to Redundancy.
Reduce Contracted Hours vs Cutting Overtime
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.
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’.