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ARTICLE ORIGINALLY PUBLISHED 2020

THE COSTS OF PAYING YOUR STAFF

When, and how, you pay your staff may not be high on the agenda today.

After several years of operation salon owners contact me indicating they wish to change the pay arrangements and it isn't as easy as they might imagine.

In the last month I have been contacted by 2 salon owners wishing to change either pay interval or the date when staff are paid.

There are some salons who pay weekly in cash, but there are lots of other arrangements, for example, fortnightly, 4 weekly and of course monthly. Some employers pay on the last working day of the month, the last day of the month, or a specified date in the following month. So, what is the problem?

Paying in cash has obvious issues. Paying in the current month or before the end of the pay cycle might create any of the following situations:

a rush to process payroll for pay day with timesheets being processed in advance
processing pay and then requiring the employee to work extra hours or they go sick
payment of commission unless it’s paid a month in arrears
Staff waiting to get paid then leaving
extra payroll costs rectifying errors

Similarly paying several weeks into the following month can mean new starters may wait over a month for their first pay; which can be unattractive.

Let’s look at an example

Salon xx pays its staff on the last day of the month by BACS. Their payroll provider needs the information at least 3 working days in advance.

This inevitably results in staff being under or overpaid and the end of month rush to provide the information.

Salon xx decides that it is going to pay staff on the 7th of the month i.e. a week later, it makes obvious sense the staff will now be paid correctly based on a full months work ......well its obvious sense to the salon owner.

For some employees it’s “a nightmare”. Suddenly their months salary has to last a week longer. Their rent and direct debits are timed to happen on pay day and there are financial penalties for not paying on time—of course they aren't going to agree to this.

One of the team knows a solicitor who tells you that the change in pay date is effectively a breach of contract and they can resign and claim constructive dismissal. That's all well and good but can the employee afford to give up their job? Instead the staff get together and tell the salon owner in no uncertain terms how unhappy they are.

Another route

Okay let’s start again. The reason for the change of pay date makes sense and it saves the salon owner a few pounds in payroll/accountancy costs. But, now you are aware of the implications for staff, how can you sweeten the pill?

Firstly, I think changing the date to the 5th day of the month reduces the delay and still gives the employer 5 days to gets the pay sorted. 2 days might make a big difference.

Your payroll costs will be reduced forever once the change is implemented and you will no longer face the pain of having to have conversations with staff about recovering overpayments. Therefore, you might decide its worth an incentive, such as £50 each to encourage them to agree to the change—this might work.

Another option is effectively to give staff a loan equivalent to a weeks’ pay or some other amount. They can sign to confirm that you can deduct the loan, over say the next three months, that really does minimise objections.

If this doesn’t work, before taking the plunge and imposing the change, a final solution, might be to give masses of notice of the change such as 6 months. It could be argued that this gives employees substantial time to adjust to the change.

What Could Go Wrong?

There was a well-known case in 2017 involving the Post Office. They wanted staff to change from weekly to monthly pay. When full agreement couldn't be agreed the change was imposed. Two of the 1200 staff affected to their claim for an unlawful deduction of pay to Employment Tribunal.

The 2 employees wouldn't agree to the change but carried on working, they didn't resign or leave. The Post office argued that this meant the 2 employees had accepted the change.

The employees had not made it clear they were “working under protest”, and had accepted loans to help with the introduction. The Tribunal didn't agree and concluded there had been an unlawful deduction of pay and a breach of contract.

The message really is tread carefully, be cautious, be patient and flexible. Gaining the workforces agreement is by far the best outcome.

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