Pay cuts essential for business survival, but are they legal?

THE idea of getting to return to work is an exciting one, especially for those who have been working from home since the start of the COVID-19 pandemic last year.

However, any hopes of getting their full salaries back remains up in the air for now, as some employers have insisted that businesses must pick up first before they can afford to reinstate their employees’ salaries.

Since the country first entered its first lockdown in March 2020, the worrisome economic situation has caused panic, especially among employers who are concerned about the downfall of the company’s cash flow and financial returns.

As a result, a large number of employees have taken a pay cut, while others were forced to take unpaid leaves or have their allowances taken away as a measure to reduce costs and to minimise the impact on businesses.

But here’s the question: are these measures being done legally and in accordance to the country’s Labour Law?

According to law firm MahWengKwai and Associates in an article published on their website, employers are not allowed to impose a pay cut without first obtaining the consent of their employees.

The article, titled Business Downturn Due to COVID-19, also said that a deduction in workers’ salaries may be allowed only under certain conditions, specifically when it is the only option left to prevent termination of services or retrenchment of employees.

It pointed out that under Section 24(1) of the Employment Act (EA) 1955, an employer is not allowed to reduce an employee’s salary unless it is in accordance with the Act.

As to whether or not employees can be forced to take unpaid leaves, the strict answer, according to the EA, is that the employer does not have an automatic right to do so.

Having said that, it is perhaps also worth noting at this point that there is a fine line between following the law – in this case, the Employment Act 1955 – to a ‘T’ and doing everything you can to ensure your business’s survival.

Some businesses are so badly affected by the pandemic that cost-cutting measures are the only alternatives they have. Would you blame them, though, considering the fact that their own survival is on the line as well?

To these people, ensuring the survival of their businesses is their main priority, even if this meant that they have to introduce certain not-so-legal measures along the way. – April 13, 2021

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