How much of a pay-cut is acceptable?

mikeopvc

I run a small business and we are finding things a bit hard lately, I'm trying to reduce costs as much as I can.
I have done pretty much all I can including laying off one member of staff.
After looking at all the figures etc. I have come to the conclusion that my main problem is finding the wages for one member of staff in particular, he has been with us from the start and has always been well paid but the more I think about it the more i realise that I have been paying him too much.
I know this is my own fault and can't change the past but I need to make a change now and quickly.
I want to stay on the right side of the law so thought to check first what his, and my rights are.
I plan to call him into the office for a chat and explain that i can no longer afford to pay the amount he is on, then suggest a reduced amount and take it from there, my worry is that he might say I can't do that so I need to know for sure.

Any advice on this would be great please.

jdturk

http://www.direct.gov.uk/en/Employment/Employees/EmploymentContractsAndConditions/DG_10028079
The above is why contracts can be changed

http://www.direct.gov.uk/en/Employment/Employees/EmploymentContractsAndConditions/DG_10037116

The above is what the person can do if they disagree with your changes.

It is best to be knowledgeable on what could happen but you have to be wary that what you do cannot be construed as discriminatory (in sex, gender, race etc)

You can change someones contract for business needs but you have to go about it in the correct way.

Really the best thing you can do is talk to a HR company about how to go about this, it will cost you a bit of money but it may outweigh being taken to an Employment Tribunal if you get it horribly wrong on your own

jdturk

FWIW a 10-20% paycut is what I would accept as reasonable as long as it does not take them below the National Minimum Wage.

This is not a great situation to be in so when you speak to that person you need to have figures ready to show why it is required...not just 'oh business has been bad....'

You need to be prepared to show that Business is X% down, costs are Y% up and if needs be show them what you are taking home (presumably not alot if things are bad?)

mikeopvc

jdturk wrote: »

http://www.direct.gov.uk/en/Employment/Employees/EmploymentContractsAndConditions/DG_10028079
The above is why contracts can be changed

http://www.direct.gov.uk/en/Employment/Employees/EmploymentContractsAndConditions/DG_10037116

The above is what the person can do if they disagree with your changes.

It is best to be knowledgeable on what could happen but you have to be wary that what you do cannot be construed as discriminatory (in sex, gender, race etc)

You can change someones contract for business needs but you have to go about it in the correct way.

Really the best thing you can do is talk to a HR company about how to go about this, it will cost you a bit of money but it may outweigh being taken to an Employment Tribunal if you get it horribly wrong on your own

There is no contract, he wouldn't sign one when he started. We just verbally agreed the terms.
Stupid of me not to insist I know but he was adamant that he didn't do contracts.

jdturk

He has a contract even if its not a written one, you can not just get rid of him (not that you would by the sounds of it).

Because there is no written contract you have to presume he is on a statutory contract as a minimum plus whatever else you have agreed (ie the statutory holiday is a minimum of 5.6 weeks (28 days) to inculde bank holidays (though you are not olbliged to give him bank holidays off), you may have been giving him 33 days holiday per year so this would form part of the contract and you would not be allowed to go back to 28 days without consultation with him (hence see my links)

As I say it may be worth your while speaking to a Human Resource company

mikeopvc

jdturk wrote: »

FWIW a 10-20% paycut is what I would accept as reasonable as long as it does not take them below the National Minimum Wage.

This is not a great situation to be in so when you speak to that person you need to have figures ready to show why it is required...not just 'oh business has been bad....'

You need to be prepared to show that Business is X% down, costs are Y% up and if needs be show them what you are taking home (presumably not alot if things are bad?)

I don't have percentage figures like that, i'm not very good with figures I'm just a tradesman with a couple of guys working for me.
His pay would still be well above the minimum wage even after the cut.
I take home less than him and it's my business, I was the first to take a pay cut.
It's not just a case of business being bad, even when business is good his wages are still high.

jdturk

As I said you probably need to talk to someone so you don't make a mistake, your colleague may not do anything but if you don't do it right you could be taken to an employment tribunal.

Your figures only need to be basic but it helps your case if you can prove that the company is not making enough money. Do you keep an income and expenditure spreadsheet?

I'm guessing you are window fitters due to your name or something similar well do you keep an eye on suppliers costs, fuel costs, etc etc?

If not I would suggest that it is probably wise you get use to figures and spreadsheets etc, they are vital for a business.

DCodd

mikeopvc wrote: »

I don't have percentage figures like that, i'm not very good with figures I'm just a tradesman with a couple of guys working for me.
His pay would still be well above the minimum wage even after the cut.
I take home less than him and it's my business, I was the first to take a pay cut.
It's not just a case of business being bad, even when business is good his wages are still high.

jdturk is correct, you need to take proper advice.

Is it that the business is making less profit doing the same amount of work or is it that the work has reduced? If the later, you could look to go down the short working week route, but again, as there is no formal contract in place you would need advice.

mikeopvc

DCodd wrote: »

jdturk is correct, you need to take proper advice.

Is it that the business is making less profit doing the same amount of work or is it that the work has reduced? If the later, you could look to go down the short working week route, but again, as there is no formal contract in place you would need advice.

To be honest the business has never really made a lot of profit, apart from in the summer months when we are really busy and have constant work. As soon as we have a period of little or no work then what profit we had made is soon eaten up by his high wages.
I know it sounds like a case of what's the point of the business if it isn't making a lot of profit but the reason for going self employed in the first place was partly a lifestyle choice due to many years of working for !!!!!! for a pittance.
I became self employed and eployed this person from day one, he wouldn't be my partner as his wife was worried about the risk what with their mortgage etc. He would only leave his current full time job and work for me if I agreed to the pay he wanted.
It's taken a long time for me to realise and it's not easy to admit it but I did screw up with my sums, ultimately he has done better out of my business than I have, Don't get me wrong I don't resent him or anything like that and I fully accept all responsibility.
Thing is I need to act now before it's too late, I have my wife, children and my own mortgage, debts etc. to worry about so this is one of many cost cutting excercises I have to carry out, but unfortunately the most difficult.
Also I want to make sure it's all done in the right way, I will seek proper advice from perhaps my solicitor,(15 minutes freebie):p

thanks

jdturk

mikeopvc wrote: »

To be honest the business has never really made a lot of profit, apart from in the summer months when we are really busy and have constant work. As soon as we have a period of little or no work then what profit we had made is soon eaten up by his high wages.
I know it sounds like a case of what's the point of the business if it isn't making a lot of profit but the reason for going self employed in the first place was partly a lifestyle choice due to many years of working for !!!!!! for a pittance.
I became self employed and eployed this person from day one, he wouldn't be my partner as his wife was worried about the risk what with their mortgage etc. He would only leave his current full time job and work for me if I agreed to the pay he wanted.
It's taken a long time for me to realise and it's not easy to admit it but I did screw up with my sums, ultimately he has done better out of my business than I have, Don't get me wrong I don't resent him or anything like that and I fully accept all responsibility.
Thing is I need to act now before it's too late, I have my wife, children and my own mortgage, debts etc. to worry about so this is one of many cost cutting excercises I have to carry out, but unfortunately the most difficult.
Also I want to make sure it's all done in the right way, I will seek proper advice from perhaps my solicitor,(15 minutes freebie):p

thanks

He's not stupid by the sounds of it which makes me worry that if you go slightly wrong that he will try to take you to the cleaners. He has very little liability except for his job obviously.

If your company has been kept afloat during the lean times it bodes well for you in the fact you must have contacts etc. I just think you need to get a grasp on the figures and you can make this work

Good luck and again get as much information as possible before acting, as I said maybe phone ACAS (not sure if they help Employers as well as Employees)

paulwf

Call Business Link and see if they can give you some mentoring. They are free so don't worry about cost, they may be able to help you with both a strategy to cut costs and also a plan to increase business. There may also be local enterprise agencies and council departments that can help (again for free), they'll be glad to help. Ultimately it would be good to come up with a rough 5 year plan (a bit like when you start up) to see where you are going.

Have you talked to your accountant for advice as well? One option may be to make your employee redundant, sometimes extra wages outweigh the extra money that person brings in for the business. I would also get some plan in place to get a monthly statement of accounts, it will be difficult to go forward and increase business and reduce costs without a "thermometer" of how you are doing. You've identified figures as one of your weaknesses so that would be a good area to focus on and get help from others, i.e. your accountant or a book keeper. Presumably they are having to do regular accounts anyway for VAT returns so giving you a regular update shouldn't be any extra work for them.

Here's hoping it all works out for you!