Companies are increasingly looking for possibilities to streamline (wage) costs within the company. This can be done, for example, on the basis of a salary reduction, but this cannot be done overnight. In fact, an agreement is required with the employee, and often it will be part of a broader picture.
Finally, depending on how it is implemented, it can be a real win-win situation for both the employer, who will see his labor costs reduced, and the employee, who will have more purchasing power.
In this contribution, we discuss the various options and concerns of a salary reduction.
The salary is considered to be an essential element of the employment contract.
If the employer unilaterally decides to significantly reduce the salary for all employees or some employees in his company, this may constitute an implicit dismissal (act equivalent to terminating the employment contract) and the employees will be able to claim severance pay on that basis.
Is it forbidden to reduce wages? What are the concerns and which options does an employer have?
Can you reduce the salary?
An employer always has the option of reaching a lower salary agreement with the employee(s) concerned. This discussion can be held at individual level, but also through a collective bargaining agreement. Of course, the reduction applies only for the future.
Think about:
Always respect sectoral salary scales!
The employer must always pay the minimum sectoral salary scales.
Compensate the salary reduction with another benefit in a flexible reward plan!
Let's illustrate this with an example: the company can, on the one hand, propose a salary reduction to employees and, on the other hand, provide them with a company bicycle. The employee will then receive slightly less salary each month but will have a bicycle that he/she will use which is exempt from social security contributions and payroll withholding tax for regular commuting. The employee even has the option of purchasing the bicycle at the end of the lease contract.
Why not create a broader flexible reward plan?
By exchanging the part of the salary reduction and placing it in a flexible reward plan, the employee can make individual choices on how to spend his/her salary at favorable tax and social rates (for example, for a bicycle, vacation days, cell phone, car, tablet, extra coverage in the hospitalization insurance etc.).
Such an approach can make costs increase less rapidly, since the amounts in the flexible reward plan are not indexed.
Conclusion
Salary reductions are possible with the agreement of the employee as long as the sectoral salary scale is paid.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.