Can You Cut an Employee’s Salary or Hours Due to Financial Trouble?
- Alan van der Merwe
- Jul 16
- 3 min read
Updated: Oct 16
Know the Law Before You Act: Essential Guidance for Small Businesses
When business is tough, especially for small companies with only one employee, it’s tempting to look for quick fixes. Cutting salaries or reducing working hours may seem like a solution to stay afloat. However, South African labour law is clear: you cannot change an employee’s conditions of employment unilaterally, even if your company is in financial distress.
Let’s unpack what you need to know before taking that step.
⚖️ You Can’t Do It Without Consent
If you have an employee — even just one — you cannot legally reduce their salary or working hours without first obtaining their informed and voluntary agreement. Changing these key terms without agreement can lead to serious consequences:
A breach of contract claim.
A labour dispute for unfair labour practices.
An automatically unfair dismissal claim if you force the change or terminate the employee for refusing to accept it.
🏢 When Financial Trouble Hits: What You Can Do
If you're trying to save your business and reducing working hours and pay is the only viable option, you must follow the correct process outlined in section 189 of the Labour Relations Act — the retrenchment procedure. This applies even if you're a one-man operation with a single employee.
📝 The Right Way to Do It
Here’s a simple breakdown of what you need to do:
Give Written Notice: Provide your employee with written notice that you are considering changes due to financial constraints. This is known as a section 189(3) notice.
Start a Consultation Process: Sit down formally with the employee to discuss the situation. This is not just a courtesy; it’s a legal requirement.
Discuss Alternatives: Talk through alternatives like:
Reduced hours with reduced pay.
Job-sharing.
Temporary layoff.
Unpaid leave.
Document Agreement: If the employee agrees, sign a written agreement recording the new terms.
Termination for Operational Requirements: If there’s no agreement and all options are exhausted, you may proceed with termination for operational requirements. However, this must only occur if the process was fair and all alternatives were genuinely considered.
⚠️ Don’t Risk Costly Mistakes
Skipping this process or making unilateral decisions can land you in serious trouble with the CCMA or Labour Court. You may face orders to pay compensation, reinstate the employee, or even incur penalties for unfair dismissal.
✅ Bottom Line
If your business is struggling, reducing salaries and hours might be part of the solution. However, it must be done lawfully. Always seek proper legal advice and follow the process. Consult. Engage. Document.
Need Assistance?
Need help drafting a section 189 notice or employee agreement? We’re here to assist.
📞 Contact Advocate A.R. van der Merwe, Trust Account Advocate, for tailored legal support that gets it right the first time.
Understanding the Importance of Compliance
Compliance with labour laws is crucial for the sustainability of any business. Ignoring these laws can lead to severe repercussions. It is essential to understand your obligations as an employer.
The Role of Legal Advice
Legal advice can be invaluable when navigating complex employment issues. Engaging with a legal professional ensures you are aware of your rights and obligations. This can prevent costly mistakes and help maintain a positive working relationship with your employees.
Building a Positive Workplace Culture
Creating a positive workplace culture is essential, especially during challenging times. Open communication and transparency can foster trust and cooperation. Employees are more likely to engage in discussions about changes if they feel valued and respected.
Conclusion
In conclusion, understanding and adhering to South African labour law is vital for small businesses. While financial difficulties may tempt you to make hasty decisions, it is crucial to follow the legal process. Always prioritize communication and seek legal guidance when necessary.
By doing so, you can navigate tough times while maintaining your business's integrity and your employees' trust.
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