Measures to reduce operational costs amidst COVID-19

In these difficult and unprecedented times, many employers are finding it financially hard to keep up with the administrative costs of running a business including payment of remuneration. We have gathered some best practices and provided a few of our own to advise employers about the options that can be considered before a retrenchment is done.

Section 31 (1) (c) (ii) of the Employment Labour Relations Act, 2004 places an obligation to an employer to use any measure to avoid or minimize the intended retrenchment. These measures are varied and each employer can look for a way to avoid or minimize retrenchment in a way that suits their business environment.

We provide herein some options that an employer can use in order to secure the employment of the employees but at the same time reduce the cost of operations and the financial impact of COVID-19. For further questions and clarifications, kindly contact the ATE offices.

Reduction of Salaries by Mutual Agreement
Section 27 of the Employment Labour Relations Act, 2004 provides for the payment of remuneration and that any employer who contravenes this section commits an offense. The law does not provide for a Reduction of Salary however the law recognises and respects the mutual agreement of an employer and employee that does not contravene the law. An agreement between the employer and employee agreeing to Reduce the salary as a measure to avoid retrenchment is one which will be respected as long as it has the mutual consent of both parties. An employer cannot therefore unilaterally decide to reduce salaries without the written consent of the employee.

Unpaid leave
As with the reduction of remuneration above, the law is silent on the matter of unpaid leave. However, in instances such as an employee not being entitled to maternity leave but having given birth, she has to take 6 weeks of leave. This is not specified under the Act but can be clearly construed to mean unpaid leave. In other unforeseen circumstances such as COVID-19; indeed one measure that can be employed by the employer is to bilaterally discuss and agree with employees on taking unpaid leave as a measure to avoid retrenchment. This can be for an unforeseen period of time or for a specified number of weeks or months. The key here is to ensure that there is written consent regarding this unpaid leave.

Half Salary, Half Day
Again, this is one way in which an employer can enter into an agreement with employees concerning a new mode of doing work. The employer may choose to alternate employees or have employees enter to do work for half day and receive half pay as a result. This would ensure the businesses are still ongoing and the employees are not retrenched but at the same time, the costs of doing business are reduced.

Paid Leaves
Since many businesses are running a bit slower than they used to; this would be a good time for employees to be given their annual leaves. Section 31 (1) provides that it is the right of any employee to go for annual leave which is a minimum of 28 days per year.

Employers and employees are encouraged to have a forum to jointly discuss other measures such as:-

  • Reduction of discretionary/bonus amounts
  • Work-from-home measures

Most of all, employers are encouraged to ensure the safety of their employees and to prevent the spread of the Coronavirus but also to follow the government directives on handling COVID-19.

Retrenchment amidst Covid-19