Salary Reduction: The Basic Things Employers Should Know

The global pandemic has severely affected Malaysian organisations. Most organisations had to cut down costs through multiple methods such as downsizing, temporary lay-offs and implementing pay cuts. 

Since the job market is also badly affected, there is not much choice for employees other than to accept salary reduction that their employers have offered them. 

According to dispute resolution lawyer Yee Jun Hong at JH Yee & Co, generally, employees should be aware that a salary reduction is basically a modification of the employment contract and the contractual terms can only be modified if both parties mutually agree to it. 

Therefore, employers must first ask for the employee's consent before reducing their salary. If the employer fails to do so, it would form a ground for constructive dismissal. 

Employers and employees must have a written agreement on salary reduction.

In order to make sure that there is mutual agreement, both employers and employees must have a written agreement confirming that the salary reduction is accepted by the employees voluntarily. Both of them will also need to make sure that the terms modified are fair and reasonable, especially the term of the salary reduction and if it is permanent or just temporary. 

if the worst comes to the worst, there is a possibility that an employee will have no choice but to accept the offer even though the terms are unfavourable to them. However, the employee can negotiate with the employer. Here are among the options for the employee to negotiate:

• Reduce working hours
• Create a flexible working arrangement
• Limiting the job scopes
• The freedom to find a part-time job as long as the side job has no direct competition or conflict of interest with the current employer.

Employment is the contractual relationship between the organisation and the employee. Both parties will have to negotiate the contract in a fair and reasonable manner. Both parties must also have written consent in place. 

As for a temporary lay-off, currently, there is no such law in Malaysia that justifies such a measure unless there is a Force Majeure clause. Force Majeure refers to the occurrence of an event which is outside the reasonable control of a party and which prevents that party from performing its obligations under a contract.

Under the Force Majeure clause, employers can temporarily lay off their employees, subject to the full terms and effect of the contract, in the existing contract. If a company is forced to resort to this method it would also have to be done by way of mutual agreement. 

The employer must have the employee's consent before reducing their salary.

Employees should know that employers cannot reduce their salary without just cause, and it will not benefit them anyway if the employers are forced out of business.

Finally, both employers and employees need to know what to expect so that they can make financial preparations. Employees can choose between taking a salary reduction for a fixed term or to have "deferred or staggered" salary payment. This means that employee employees can either take a reduced salary for a fixed period of time and be paid back the difference in amount or an agreed fixed sum later on.

Employees can take a salary reduction and work out both contractual bonus scheme that requires employers to deliver a bonus sum should they achieve specific targets. 

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Source: Focus Malaysia

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