As the economy remains sluggish, employers are increasingly looking to their cost base in order to achieve further savings. A significant proportion of these may be found in salaries, but the trade-off is that employers need key people to maintain business and mobilise for any upturn.

Some are utilising a three-day week mechanism, but what are the implications? At the outset, they should conduct a financial analysis of employee costs allied to available funds or cash reserves. If these do not equate or are simply unsustainable, you will need to identify the roles and functions to which a reduced working week should apply. Having identified these, employers should communicate formally in writing to request a three-day week, setting out the reasons for the move. The duration should also be stipulated with a review period incorporated.

A reduction in hours is a fundamental change to the contract of employment and must be agreed with any affected employees. But, what happens if employees do not agree to any proposal? This would leave employers with a difficult decision to make, one which may involve redundancies. Employers must always take legal advice before implementing redundancies.

Employees who do agree to reduced working hours may qualify for a social welfare payment to supplement any reduction in income, where they are unemployed for at least three out of six consecutive days. There are two types available: jobseekers benefit and jobseekers allowance; employees can contact their local social welfare office for further information and advice.

If after a period, an employer cannot sustain employee salaries, redundancies may be inevitable. As an employer if you make an employee redundant within one year of them being put on reduced working hours or pay, then the redundancy payment will be based on the employee's earnings for a full week.

If, on the other hand, employees are made redundant after this one-year period, how redundancy is to be calculated is contingent on whether the employee accepted the reduced working hours or not. In this instance employers should always take legal advice.

Oisín Scollard is a Barrister and Director of HR company Employment Clinic

www.employmentclinic.ie