With the minimum wage and award increases fast approaching, here’s how HR can help their organisations to assess their options.
The Fair Work Commission’s recent announcement that it would increase the national minimum wage by six per cent, and minimum award wages by 4.75 per cent, caught some analysts by surprise.
The scheduled increases outpace inflation over the financial year to date, prompting some commentators to suggest they could add to inflationary pressures and trigger interest-rate hikes.
But for employers with employees on minimum or award wages, there are more pressing concerns than the future costs of borrowing. These employers face a tough choice ahead of 1 July: absorb the cost of higher wages or reduce headcount.
Those who choose the latter option face a slew of potential issues, including legal action by terminated employees and risks to the psychosocial safety of retained employees, who could be saddled with heavier workloads.
That’s why reducing headcount should be considered a last resort, says Lisa Mannering FCPHR, employment lawyer and HR consultant at Langtree Legal and a member of AHRI’s ER/IR advisory panel.
“The first question for employers has to be: ‘Is this our only choice?’ In many instances, there are alternatives.”
How can employers absorb wage increases?
HR is credibly placed to engage leaders in conversations about hours worked and expenses claimed, and these are the areas that employers should look at first when attempting to absorb costs, says Mannering .
“The simplest savings an employer can make are by reviewing and decreasing overtime, and decreasing expenses. Dialling back discretionary benefits may be an option, too. Employers may find that these measures alone re-balance the books.”
For consumer-facing businesses, changing operating hours to minimise evening and weekend trading and increasing prices to absorb the wage increases are two other moves worth considering, says Mannering.
The impending changes could also serve as a jumping-off point for a conversation between HR and leaders about productivity.
“Getting more efficiency out of the assets and people that you have, or implementing tech solutions to reduce hours worked, could future-proof your organisation and actually be simpler than shedding staff entirely,” says Mannering.
While it may not be a popular move, freezing wage increases for those workers on above-award rates is another possibility.
“Employers who are currently paying rates above the award may not be required to increase pay rates, if those rates already meet or exceed the new minimums,” says Mannering.
“Where there’s a buffer, maybe those employees don’t need to have a wage increase [this year], or they can have a minimal increase.”
“The simplest savings an employer can make are by reviewing and decreasing overtime, and decreasing expenses.” – Lisa Mannering FCPHR
What are the legal implications of reducing headcount?
Employers that do choose to shed employees should only do so as part of a broader organisational re-structure, says Mannering.
“If you terminate staff because of the wage increase, there’s a risk of a general protections claim. Businesses need to be looking at it from the perspective of: ‘Do we need to re-structure our operations as a result of the increase?’ Rather than: ‘We are terminating particular staff because their rate of pay has gone up.’ They are two very different propositions.”
Assigning new duties to the employees who remain must be done in accordance with existing employment contracts, notes Mannering.
“Employers can’t unilaterally vary positions, so if you’re talking about a permanent re-allocation of duties, there needs to be discussion and agreement between employers and employees on what that looks like. Failing to do so could have contractual risks for the employer.”
If a re-structure precipitates major workplace-wide change, employers also have a legal obligation to consult with all employees covered by awards or enterprise agreements, says Mannering.
Even when not legally required – for example, if an employee’s contract allows for some variation in duties – properly consulting with retained employees about their evolved roles makes practical sense, she adds.
“Sometimes in these types of consultation processes we see solutions coming from front-line employees that employers might not have thought of, such as ways to vary a roster or employees voluntarily reducing their working hours.”
Safety implications of leaner teams
Mannering points out that four of the key psychosocial hazards identified by Safe Work Australia in its Model Code of Practice – job demands, lack of role clarity, low job control and poor organisational change management – can all present when reducing headcount.
In addition to weighing the financial and productivity implications of cutting employees, she recommends undertaking an assessment of psychosocial risk.
“That assessment should start with a review of the team’s current performance and capability. If the team is not high-performing and capable, and staff members are cut, psychosocial risk may be heightened.”
Employers whose employees undertake manual work should also carefully consider whether reducing headcount could heighten physical risk.
“If people are working faster to get the job done, or they’re cutting corners because they’re under-resourced, there’s obviously a greater physical-safety risk, as well.”
Five steps towards reducing headcount
Mannering offers a five-point plan to help employers prepare to restructure:
- Review workflows and workloads. “Getting a good understanding of what’s actually happening in the workplace, before changes are made, is crucial.”
- Consult on changes with affected employees. “Speak to employees before you increase or vary their workload. Consider consulting with the workforce more broadly, too.”
- Understand the risks and obligations. “In addition to possible legal, contractual and compliance risks, there are reputational risks and moral obligations that are important for many businesses.”
- Define the desired result. “It’s easy to get caught up in the change management process without a clear picture of where you want to go. Ask yourself: ‘What is our intent, and how do we get there in the simplest and cleanest way possible?’”
- Map the process from start to finish. “Get clear on what the steps are beyond simply shedding employees. For example, will employees need additional training? Break it down so you can see the path to the desired result.”
While making employees redundant is never easy, Mannering encourages employers who choose this option to consider the upside.
“Restructuring can be an opportunity to maximise the efficiency and productivity of a team,” she says. “The end result can be a more resilient business.”
🧰 HR’s career resource toolkit
- Podcast: Hear more from Lisa Mannering FCPHR on the recent NES Review in this podcast episode of AHRI’s ER/IR Unpacked.
- Learning: Take your employment law expertise to the next level with AHRI’s Advanced HR Law course, or ensure you’ve got your bases covered with this introduction course.
