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Can change pay frequency if properly managed

Can an employer change an employee's pay period without the employee's consent? In a recent case, the Employment Tribunal held that an employer could.

The Radio Network employed some eight hundred employees throughout the country. Some staff were paid monthly, but the majority were paid fortnightly. The company operated four different payroll structures.

The company was in financial difficulty and saw an opportunity to reduce its costs by moving all staff to a monthly pay period. It estimated that it would save around $75,000 a year by doing this.

To ensure that staff were not financially disadvantaged, the company proposed that salaries be paid two weeks in arrears and two weeks in advance. It also offered to meet out of pocket expenses incurred by staff, such as bank fees for changing automatic payments and the like. The company was also open to discuss with individual staff any other hardship they might suffer.

All but six of the company's staff accepted the change. The six who did not ("the applicants"), applied to the Employment Tribunal for a compliance order ordering the company to reinstate their fortnightly pay periods. They argued that it was a term of their respective employment contracts that they would be paid fortnightly, and that this term could not be changed without their consent.

The Employment Tribunal disagreed. It held that the company was entitled to proceed with the change as part of its right to manage its business, provided that it consulted appropriately with its employees. In reaching its decision, the Tribunal noted that:

  • The pay period was not mentioned in any of the applicants' employment contracts.
  • The applicants' salaries were expressed in terms of an annual income, and not an hourly, weekly, fortnightly, or monthly rate.
  • Unlike the United Kingdom, there was no statute in New Zealand governing the frequency of pay periods or requiring employment contracts to specify their frequency.
  • Although the applicants had been paid fortnightly in the past, the law allowed for such practices to be changed on reasonable notice.
  • The company's proposal was reasonable in the circumstances.
  • Because the company paid its employees two weeks in arrears and two weeks in advance and offered to reimburse them for out of pocket expenses, the applicants had suffered no prejudiced as a result of the change.

The Tribunal refused to recognise fortnightly pay periods as an implied term of the employee's contracts because it did not meet the criteria for implied terms. In particular,

"there was no evidence to suggest that the contracts of employment of any of the applicants would be ineffective unless fortnightly pay periods were implied" the Tribunal said.

While this case indicates that an employer may change an employee's pay period without his or her consent, any change needs to be managed carefully. Employees must be given reasonable notice of the change, and must suffer no prejudice as a result of the change. In this case any prejudice to the employees was avoided by the company paying them two weeks in arrears and two weeks in advance, and offering to reimburse them for any out of pocket expenses such as bank charges.

Employers should note that they cannot change an employee's pay period if the frequency of the pay period is specified in the employee's employment contract.

See also Changing all employee frequencies in Ace Payroll.

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