Businesses declare workers pay cut to mask earnings
Experts are concerned that some businesses recovering from Covid-19 shocks have found a new way to make profit by declaring employee pay cut as earnings instead of reinstating their staff to their original remuneration.
They say that some companies that were doing poorly before the pandemic struck are now doing better simply because they are withholding what is supposed to be employees’ salary.
Many companies in the country, especially in the service sector, have effected pay cuts or declared employees redundant since Covid-19 was reported in Kenya in March.
“They have reinvented a new profit, a credit they do not have to pay back. Some companies are treating it as a right yet it’s supposed to be treated as a debt,” said John Ouma, a human resources specialist.
He said pay cut will serve as a key test for organisations’ character and integrity noting that the pandemic was a blessing in disguise for some organisations that had always contemplated effecting redundancies as it made easier for them to fire staff.
“It is a good indicator of whether employers value their human capital, whether organizations value profits over people.
I t will show whether an organization views its employees as an investment or a burden and whether they invest in people first or last.”
According to Ouma, many pay cut agreements lack a clear mechanism as to how the employer would revert to original remuneration, leaving employees exposed to exploitation and turning what was supposed to be a temporary measure into a permanent one.
Worse still, it is causing dilemma for top managers as they have to choose between having impressive numbers at the expense of employee welfare while and paying salaries and posting poorer results.
“This can only be solved by sticking to the character of the organization. There are cases of some companies not effecting a change on the pay cut even when it’s clearly visible to employees that there is money coming in,” he said.
Samson Osero, a human resources specialist, noted that staff is usually an easy target for companies in times of hardship since an employer has room to claim redundancy and other acceptable justifications.
“Other expenses, such as office rent, are not as easy to do away with as staff,” Osero said.
For labour intensive organizations, a pay could see the company save as much as 60 per cent of its expenses.
Osero said a pay cut could be viewed as a new agreement between an employee and his employer with a provision that once things got better, the two would revert to the previous remuneration agreement.
Central Organissation of Trade Union (Cotu) Deputy Secretary General, Benson Okwaro, said he suspected companies without unions were the most affected by this as the labour union ensured pay cut agreements had a clause requiring employers to revert to the original salaries once the business had reported consistent profit for a certain period of time.
He, however, cautioned against employees demanding a prompt reinstatement of their original salary positions saying this could force employers to resort to redundancies.
“Pay cut was effected on the understanding that everyone needed to help navigate the tough economic times.
The deficit companies made during the period were enormous. Whether the pay cut is treated as a debt or not depends on the agreement between employer and employee,” Okwaro said.
The Federation of Kenya Employers (FKE), however, dismissed the claims terming them speculative.
“I don’t think that is factual. For most companies that effected pay cuts, that was done in agreement with workers after due consultations. Some actually undertook to pay it back when business improves,” said FKE chief executive, Jacqueline Mugo.
“It wasn’t a permanent write off but in some cases the cash flow could not afford the companies to continue operating. It was a necessary step.”
She, however, warned that failure to reinstate employees back to their original salaries could expose companies to avoidable lawsuits noting that the cuts were meant to be temporary and were to be reviewed as businesses performance improved.
“If there is evidence that a company is declaring profit and not paying the staff the salaries in the substantive contract, they will then be exposing themselves to a lot of litigation.
That is contrary to the agreements we signed with the unions and that can be litigated,” Mugo said.
“You cannot be paying 75 per cent, 50 per cent lower salary and claiming a profit.
That would be unconscionable and the employees can actually fight. These figures are known, the numbers are done by the very staff themselves,” she added.
She said while ideally the pay cut should be treated as a debt to be paid later, in most cases it was left to the individual employers and their staff to decide how to view it.
She called on companies to make a full disclosure of their financial situation to employees to avoid speculation which can result in disagreements.
The experts noted that most employees have little or no recourse on the matter and can only go with what management tells them.
They called on political leaders to show more concern for employee welfare but warned against creating a law to address pay cut reinstatement as it could be counterproductive.
“This can be addressed by customers and suppliers vowing not to trade or award tenders to companies that treat employees badly.
Companies ought to have a mechanism for sharing profits with employees, not profiteering from them,” said Ouma.
According to Kenya National Bureau of Statistics, over 1.7 million Kenyans lost jobs in the three months between March and June last year due to the Covid-19 pandemic.