Resolving Dilemmas On Cutting Workforce Costs Legally

Lately, we from ŠunjkaLaw Employment team, have noticed circulation of some to say the least „problematic“ legal advice and articles on how to cut the costs of workforce during extraordinary state of emergency. We will try to set the record straight in this short overview.

1 – Redistribution of working hours is NOT a legally acceptable way to reduce the salaries of your employees.

We have come across some articles which, among other advice, offer advice on how to cut the costs of your workforce during the crisis caused by COVID-19 pandemics and one of the advice that caught our eye is based on redistribution of the working hours of employees and consequential and proportionate decrease of their salaries, based on application of article 107 of the Employment Law.

This is simply put – wrong. Legally wrong. Here is why.

Redistribution of the working hours is based on average of working hours of employee during certain period of time (6 months prescribed be the Law), during which 6 months is necessary to establish balance in working hours, for example by having 20 working hours week during 3 months and then balancing it out with 60 working hours weeks during the next 3 months, thus achieving 40 working hours week (as prescribed by the Law) during the entire period of 6 months covered by exercised redistribution.

Due to its nature, legal institute of redistribution of working hours is meant for seasonal business with significant periodical spikes and drops in volume of business.

Having in mind that the employee shall be working during this period 40 hours per week on average, he is entitled to a full amount of salary during this period.

The sense behind this is that the employee will be „privileged“ during the period of reduced work since due to receiving full salary for less work. However, employee will, to balance this out, work more in the other part of the period of the redistribution, for the same amount of salary.

In accordance with the Law, working longer than 40 hours per week in case of redistribution of working hours is not considered as overtime work and the employee is not entitled to increased salary for working hours longer than full-time during the redistribution, as he was compensated for this by working less in second part of redistribution period (or may even be compensated with days off during which employee still receives salary).

Also, please bear in mind that in case the redistribution is introduced, and working hours reduced to e.g. 20 hours per week, if employee exceeds this limit of working hours, he will be entitled to increased salary due to overtime work, what increases the expense of his working hour for 26%. this sounds like the employee is not entitled to full salary or like way to cut costs? Of course not. Because it is not.

According to the opinion of judges from Court of Appeals and former judge of Supreme Cassation Court, reducing the salaries of employees during the redistribution of working hours where employee would be working less, would represent the avoidance of the Law, or more likely behavior directly in conflict and violation of the Employment Law.

There is already quite a volume of court practice on this issue, regarding the lawsuits of employees against public companies which confirm this position through established case law.

From all the reasons stated, you cannot cut costs of workforce by introducing the redistribution of working hours, because it will backfire through the lawsuits of employees which will be lost in proceedings before the court, but additionally increasing the financial burden of the company due to the costs of litigation proceedings and accrued interest rate.

2 – Withholding the compensation for meals during work in case of introduced work from home is NOT legally valid and is against the Law.

Many of employers have introduced the work from home based on the Decree on Organizing the Work of Employers During the Extraordinary State of Emergency (Official Herald of Republic of Serbia no 31/2020), as a measure of containing the COVID-19 worldwide pandemics.

Also, many of the employers have wondered, and even been advised that they can cut the costs by withholding the compensation for meals during work from the salary of employees.

With regard to the reimbursement of compensation for meals during work, it is regulated by the provision of Article 118, paragraph 1, item 5 of the Employment Law as follows:

The employee is entitled to reimbursement of expenses in accordance with the general act and the employment contract, and for nutrition during work, if the employer has not otherwise provided this right.

The compensation for meals during work also represents the reimbursement of actual costs incurred by employees provided that the employees carry out their work. Given that employees perform work (even though they do it from home), in the specific case, there is an obligation on the employer to compensate for these costs, since they are by nature irrespective of the fact where from the employee performs the work, as long as they perform the work, provided that the employer has not provided meals to employees in a different way, what is also in accordance with the Law.

This means in practice, in the current situation, that a potential way to optimize costs of meals for employees is to organize delivery of meals to employees.

If we can offer a final piece of advice and sort of a takeaway from all this – when considering cutting costs of workforce, be careful, don’t buy into everything you hear, since cheap and easy solutions may come with a hefty price to be paid in the end.