Last reviewed 1 July 2022

Homeworking has its pros and cons, for both employees and employers. Cost savings in particular are high on the reasons for wanting to work from home, as employees cut out (or reduce) their commuting expenses and consider moving to a cheaper area, further from the office.

But what if salary levels in the business are designed to reflect the fact most employees will need to commute using their own or public transport or in recognition of housing prices within commuting distance of the office? Can employers reduce salaries where this is the case?

Hybrid working is here to stay

A recent survey by Acas highlighted that hybrid working continues to be popular amongst employees, with results showing 60% of employers have seen an increase in hybrid working for staff compared to before the Covid-19 pandemic.

Hybrid working involves an employee dividing their time between their own home and another location, usually a central office. As a result, they save money by not having to commute every day, or even most days, but they are still able to, either occasionally or on a regular basis, work from the office if necessary.

Planning for the future: saving money

As hybrid and homeworking looks set to be a feature for many employees, employers are starting to make plans for how to manage this. One idea that has been investigated in a survey carried out by the Chartered Institute of Personnel and Development (CIPD) has revealed that 10% of companies plan on reducing pay or benefits for homeworkers.

The survey found that 4% of businesses have already reduced pay or benefits for people who continue to work from home, and a further 13% are on the cusp of doing so.

This follows recent reports that employees of law firm Stephenson Harwood have been given the option to work from home full-time in return for a 20% reduction in pay. For resourcing reasons during the pandemic, the firm recruited lawyers who lived outside of London, it said “the packages we offered were different from what we offer our people in London. They're fully remote and are not expected to regularly attend the office. If they are needed in the office, we cover their travel and accommodation expenses”.

Justifying the pay cut

At Stephenson Harwood, the justification for offering homeworkers reduced pay appears to be that these workers have the benefit of living in less expensive parts of the UK. The policy also brings pay for existing staff who accept the offer in line with its new remote workers.

Commuting can be an expensive business, even if it is in the employee’s own car. Not having to pay for this, or not as much at least, will mean the employee has more money to spend as they wish. It is possible that as a result, resentment will start within office-based employees, who may wonder how much work is actually being done at home. This can lead to negativity, poor performance and bad employee relations. Whilst a pay cut does not necessarily resolve this problem, it can appease arguments about the work being “not fair”.

Are there risks involved?

Ben Willmott, Head of Public Policy for the CIPD, said employers that are planning to reduce pay or benefits should "recognise there are potential ethical and legal risks in this approach.

"It could also make it harder to recruit or retain staff if people working remotely are valued and rewarded less than those who have to attend their organisation’s workplace.”

Some employers are choosing to take a tougher stance to entice people back to the office after other initiatives have been unsuccessful. However, employers who want to offer reduced pay or benefits to their employees in return for permanent homeworking or hybrid working, will need to carefully consider the business reasons for this and how such a scheme would be implemented, to reduce the risk of claims for constructive unfair dismissal and discrimination.

Having a clear business case that outlines what is being proposed, how it will be implemented, and what impact it will have, will enable the decision maker on this to assess the reasons for it and make a judgment on whether or not they are fair and reasonable in the circumstances.

Offering remote workers reduced pay or benefits is also likely to have a detrimental impact on morale, job satisfaction and the organisation’s reputation as a good employer, particularly given the current desire for homeworking. In turn, this can reduce the employee’s wellbeing and could lead to lower retention rates, absenteeism and resentment.

The practicalities

There are a number of ways employers can introduce this, which are of varying levels of risk. They include:

  • only allowing homeworking to those who agree to a pay cut; however, this could be indirectly discriminatory if certain demographics within your business are more likely to ask for and need this

  • putting the situation to the employee and seeing if agreement can be sought. If truly voluntary, this should not cause significant legal issues

  • forcibly changing the employee terms and conditions of those already working from home. This is a risky move to make, however, without a strong rationale as to why this measure is being taken, employers could face expensive unfair dismissal claims, breach of contract or, again, indirect discrimination.

Next steps

Employers looking to make pay cuts for their homeworking staff will need to remember that this is not without risk. It should be done with ample communication between employer/employee to make sure both sides are clear on the reasons why this has been suggested and how it is going to affect take-home pay.