Are your wages on the nose? You can cut wages to spite your face

In this current economic climate, many small businesses find themselves faced with the prospect of cutting wages costs.  Gone are the ‘boom’ years when the main concern was finding the right staff, the focus is now on efficiency, while still retaining the capacity to ramp up, when business picks up. 

Sound familiar?  Below we outline the steps taken by a business who has recently worked through these issues successfully…  

The Situation

XYZ Industries is a SME in the mining services industry.  They have always enjoyed growth, fuelled by a seemingly endless pipeline of work, and resourced by inflated staffing and salary levels.  When they found themselves in the unfamiliar situation of having almost no work for the foreseeable future they realised that their current structure and associated employee costs were unsustainable.

A Strategic Solution

XYZ recognised the importance of taking a considered approach.  They paused, and with some strategic advice, they were able to identify a number of actions to take.  A key aspect was to ensure a comprehensive and coordinated staff communications plan was implemented to both inform and maintain engagement; whilst ensuring all legislative requirements were adhered to.

1.     Cease Engagement of Casuals / Contractors

The clear first step was to take advantage of any flexibility built into the workplace.  XYZ had engaged the services of contractors and casuals to supplement their permanent workforce when demand for labour was high.  The use of contractors stopped and the work allocated to casuals was ceased.

2.     Reduce Overtime

To ensure ‘on time’ delivery, the XYZ blue collar employees had been regularly provided with the opportunity to work overtime, attracting generous penalty rates. In consultation with employees, this practice ceased and work was completed within ordinary working hours.

3.    Implement Reduced Rosters

Employees were encouraged to use their existing annual leave entitlements and/ or voluntarily reduce their working week.  As part of the review, management then liaised with staff and through negotiation and good communication, one section of the business adopted a 4-day-week.

 4.     Salary Benchmarking

It was identified that a number of salaried employees were being remunerated well in excess of current market rates, having been employed and/ or received significant increases during the ‘boom’ time.  To verify rates, comprehensive salary benchmarking was undertaken to review all roles, and as a result a percentage salary reduction was implemented across the board with a select number of individuals agreeing to higher reductions.  Current discretionary bonus payments were also suspended, and a more rigorous bonus scheme, linked to company as well as individual performance, implemented for future years.

5.     Natural Attrition/ Redundancies

XYZ had already stopped replacing employees who had left the company and had reallocated their work amongst existing employees.  As part of the broader review process, the long term requirements of all areas of XYZ operations was assessed, and it became clear that there was no longer a requirement for some roles and excess capacity in other areas.  As a result the final option in cost cutting for XYZ was to make some roles redundant and this was actioned using a thorough consultation and selection process.

Avoid ‘Death by a Thousand Cuts’

When making their decisions, strong advice was provided to be fair and realistic.  As a result XYZ made changes that were significant and would deliver the required effect immediately, minimising the need to revisit the same issue and allowing employees to move on.  Continually implementing small changes will have a devastating impact upon the culture of the organisation by keeping change and uncertainty ‘front of mind’ for employees, and will generally not deliver the benefits or cost savings in the timeframe required.

If properly managed your business can ‘save face’ and minimise the negative impact of reducing wages costs and, in the process, build a more efficient and effective business, ready to scale up, when opportunity comes knocking.

NOTE as this article goes to print XYZ Industries has advised it has successfully won some tenders, and is well placed to meet requirements!


Contact WCA Solutions - People & Culture Solutions if you require any assistance with managing your Industrial Relations and/ or general Human Resources requirements on (08) 9383 3293 or


Brilliant, XYZ are ahead of the game. Stop casuals, and contractors and the endless supply of cheap slave labor, and get their own people to do the dirty filthy dangerous jobs, that their own lazy overpaid staff refuse to do, and watch production grind to a halt, in a matter of weeks.

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