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Talking About Financial Matters That Affect You and Your Organization
4 Dont's - Sometimes You Have No Choice
May 2nd, 2016
When living in tough economic times, organizations must make difficult decisions about their workforce and compensation. Reducing wages and benefits is typically the last straw as organizations struggle to survive.
Few relish the decision to make cuts, but sometimes there are no other choices. So how the changes are made will have significant impact on how they are received. As with wages, benefits are part of the employment contract (written or implied) so the same rules apply to both. Any changes must be made with an eye to constructive dismissal.
Constructive dismissal occurs when the employer makes significant changes to the employment conditions without employee consent. Employees in this situation could argue that the relationship has effectively ended and would expect to receive severance. Not only does this create a reputation risk, but also a legal one as courts often look to a 10% loss in compensation in determining constructive dismissal.
To help reduce the risk, here are four simple Don'ts to consider,
Don't have tunnel vision - this means reviewing all forms of benefits including health and dental plans, car allowance, company-paid perks and similar extras. When looking to reduce, focus on the lower risk options with an eye on total compensation.
Don't leave it to the last minute - provide sufficient notice of any changes. While there is no specific rule, consider the wages and benefits being altered. Where possible, help the employee mitigate the risk and loss with education and support. Transparency is key in helping the workforce cope with the change and importance to the organization. As you approach the changes, reviewing the employment contracts and ensuring compliance with legislative changes is always a good idea.
Don't make the first cut the deepest - while leaders often support cutting quickly and deeply to avoid long drawn out "death by many cuts", keep in tune with the constructive dismissal thresholds. Going too far, too fast, could end up costing the company far more than the savings of the cuts.
Don't do it alone - seeking external guidance and support will help ensure the options and decisions are clear and appropriate. Employee Benefit Specialists, Accountants and Lawyers are key professionals to reach out to for help.