Remote Working Pay Reductions
With many businesses now shifting to a long-term remote or hybrid working set-up, many employers are questioning the rules when it comes to paying staff who work remotely less than their in-house or hybrid counterparts. Charlotte Geesin, head of employment law and business immigration at Howarths, explains.
Let’s start with the basics: any change to an employee’s rate of pay is likely to be a change to the terms of their employment contract. This means that the employer will need the employee’s authority to make such a change, or risk claims for breach of contract and – if the employee resigns because of it – constructive unfair dismissal.
However, there are some instances where things will be easier to navigate. If the proposal is to remove allowances or uplifts that are expressly paid because of an employee’s location of work, such as a London allowance, it might be easier for an employer to justify removal of that allowance for employees that are permanently based at a location outside the area that attracts the allowance; but it would need to be clear that these allowances are only paid during a period when the employee meets certain location criteria, and that they can be removed if that criterion is not met.
If a company is based in London, does it need to pay a London-weighted salary to its remote workers based elsewhere?
In short, the company does not necessarily have to pay the London-weighted salary to any of its remote workers who are based in other parts of the UK. However, this ultimately depends on what an employee’s individual contract says about their entitlement to London weighting.
There’s no automatic requirement for employers to pay London weighting to staff who work outside of the city, but those who have always received it and have only started working from home since the onset of the pandemic are likely to have a contractual entitlement to the enhancement.
Employers who want to reduce or remove the entitlement for these employees will need to look at varying the terms of the employment contract. They cannot readily force through changes to an employee’s contract and will usually need to get the employee’s consent to a change which can sometimes be tricky; especially in this case where home workers may argue that while they are saving on travel costs, they are incurring additional expense on utilities working from home.
Is there a difference between imposing lower pay on new starters who work remotely working staff versus existing remote workers?
Yes, there is. With the London example, given that there is no automatic entitlement to a London weighting for those who work outside of London, the employer would be free to employ new employees who are intended to be home workers on a package that excluded the enhancement, without issue.
However, with current employees who used to work in the office and are now working from home due to the shift we’ve seen because of the pandemic, the position is different. In this case, as mentioned earlier, the employer is likely to be in a position where it will need to look at implementing a variation to contract if they want to amend its terms.
It’s also important that employers ensure that any policy to reduce salaries for remote workers isn’t discriminatory. For example, if a large portion of employees that are working remotely are, for instance, female or disabled, a policy of reducing salaries for those workers could well amount to indirect discrimination.
What challenges can a remote employee put forward if they disagree with their pay being lowered?
The challenges an employee can raise will depend on their own circumstances and the reasons why they do not agree with their pay being lowered. However, there are some likely/common challenges that could occur, including:
- Breach of contract – on the basis that the employer has not followed the proper process to vary the employee’s contractual entitlement and/or that the business rationale being used to justify the variation is not reasonable
- Unlawful discrimination – if the employee is of the view that the decision to reduce their pay is because they hold a protected characteristic, e.g. sex, race, disability, age
- Unlawful discrimination – if they are of the view that the decision to reduce their pay places them at a particular disadvantage because they hold a protected characteristic, e.g. where the majority of remote workers are female
- Constructive unfair dismissal – if an employee resigns following any decision to reduce pay on the basis that they consider it constitutes a sufficiently serious breach to consider themselves released from the contract of employment
- Unfair dismissal – if an employee is dismissed for not agreeing to a reduction in pay and they consider the dismissal did not follow correct process or was not reasonable
How would you calculate the pay of somebody who works remotely from different places?
This would require two things. First, an internal pay banding structure that objectively justifies geographical salary offerings and second, an agreement with each individual employee. There are no hard and fast rules on this given that the London weighting is not calculated to a specific scale in the private sector; bosses can attach whatever weighting they see fit.
However, employers will need to be able to justify their approach from both a commercial perspective and an employment law one. A sporadic pay structure risks attracting a status of being discriminatory, unreasonable and unfair.
What risks is an employer taking on by reducing remote staff pay?
Essentially, a raft of legal claims plus potentially placing themselves at a disadvantage when it comes to recruitment and retention. There is a value to offering homeworking; many employees like it and command it and will leave employment that doesn’t offer it.
Taking a flexible approach to remote working and salaries can help to widen the pool for recruitment of candidates, which is particularly useful given that access to the EU labour market has now been restricted. Offering the flexibility of working from home will attract candidates from geographically more distant locations, those with childcare and other caring responsibilities, and those with health-related limitations.
There’s also the potential issue of a salary reduction for remote workers affecting their morale and motivation. Some employees may well be more than happy to swap a reduction in pay for the ability to work from home, but others will not. In an environment where many employees have already seen pay reductions because of furlough and increased bills at home, they may well feel aggrieved at having their pay reduced permanently. In addition, the Office for National Statistics has indicated that employees that work from home are more likely to work additional overtime when compared to employees that are site based, which may well cause remote working employees to question why a pay reduction is reasonable.
Ultimately though, salaries should be aligned with the skills, experience and requirements of the role, and working remotely should not have an impact on the value of that role or individual.
Author: Charlotte Geesin, Head of Employment Law & Business Immigration