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Hazard Pay, Pay Cuts, and Reduced Hours in the Wake of Covid-19

Topics: Recession

Since the outbreak of the coronavirus pandemic, we have been getting a lot of questions about how employers are addressing the situation, particularly in regard to reduced hours, pay increases (or pay cuts) and hazard pay.

As discussed in previous articles about why compensation matters right now, payroll is the single largest expense that most businesses have, so in times of economic hardship, managing compensation becomes critical. When a business is struggling financially or forecasts that it will be out of business if it doesn’t reduce expenses, layoffs, furloughs, pay cuts, pay freezes, and reduced hours all become options.

Managing these decisions can be tricky and the right decision will vary depending on each organization’s specific situation, but starting from a strong foundation rooted in compensation strategy, best practices, and modern compensation management software can help you navigate comp in uncertain times.

The impact of the coronavirus is particularly challenging because the situation is both extreme and unusual.There is no precedent for how to handle a global pandemic and not all industries are affected equally. Some organizations are deciding whether to keep pay raises and bonuses in place for top performers while others are struggling to pay employees at all. In some industries and occupations, employees can’t work from home. Essential businesses are also seeing a surge in demand. Are wage increases warranted to compensate employees for risking their health in order to perform their jobs?

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The situation is also changing rapidly. Compensation management requires access to recent, relevant salary market data. Compensation professionals routinely rely on employer survey data gathered by HR consultancies and other third-party providers to set compensation structures and make market adjustments for employees. However, this data is time consuming to gather and validate, so research is usually only released once a year and can be 18 months to two years old by the time it is reflected in the strategy.

In the era of Covid-19, this isn’t fast enough.

Fortunately, PayScale offers something more traditional compensation management software does not: Crowdsourced data. Although PayScale also provides employer salary data (both third-party surveys and Company Sourced data from 1,900 of PayScale’s customers), Crowdsourced data offers a competitive advantage in a swiftly moving market.

PayScale’s Crowdsourced salary data is derived from salary profiles filled out online by individuals which are then validated against the world’s largest salary database using machine learning. PayScale’s online salary survey also includes questions that enables us to understand how special skills, education, location, and other compensable factors impact pay. We can also use the PayScale online salary survey to ask employees pertinent questions about their working environment and compensation related to the current crisis.

During recent weeks, these questions have included:

  • Due to the COVID-19 (Coronavirus) Pandemic, have your work hours decreased, increased, or remained the same?
  • Due to the COVID-19 (Coronavirus) Pandemic, has your pay decreased, increased, or remained the same?
  • Have you been offered hazard pay?

After gathering this data over the last two months, we are now able to provide a preliminary look at the answers to these questions at the national level. Answers draw from 3,801 profiles of respondents who answered one or more of the COVID-19 questions between 03/01/2020 and 05/04/2020.

How Covid-19 is Impacting Hours

One of the questions we asked in our online survey is whether employees have seen their hours decrease, increase or remain the same since the coronavirus pandemic.

According to our online survey, the majority of employees (63 percent) have not seen their hours change since the coronavirus pandemic. 14 percent responded that their hours have decreased, and 13 percent said that they hours have decreased. 10 percent also responded that they have been laid off.

work hours during coronavirus

It is interesting to compare this last number to the unemployment rate for April, which economists forecasted could be as high as 16 percent, but turned out to be 14.7 percent.

How Covid-19 has Impacted Pay

We have a lot of ways to measure how Covid-19 has impacted employee pay. For example, we recently conducted research on wage growth month over month and year over year for the early part of 2020 to understand how wages have changed across industry, occupation, and major metro area. For example, we found that across all industries, wage growth slowed from 1.6 percent last year to 0.5 percent this year. The full analysis is available in a free report which will soon be updated with data from April.

Get the free report: The Impact of the Current Economy on Wage Growth.

Another way to analyze the impact of Covid-19 on employee pay is to ask employees. According to our online survey, 91 percent of employees say that their pay has remained the same. However, 6 percent of employees reported that their pay has decreased.

pay cuts during coronavirus

Pay cuts are uncommon, even when a recession is all but certain, but in this unprecedented situation, uncommon occurrences are happening more frequently. Some have argued that the uniqueness of the situation makes pay cuts the preferable option to layoffs. Part of the reason for this is the hope that the current state of unemployment is temporary. The other reason is that the damage of a recession might be mitigated if fewer jobs are lost and instead both wages and prices fall at the same time for a short amount of time. Normally pay cuts don’t happen because organizations are afraid to break implicit contracts with employees by lowering their compensation after they have accepted an offer for employment, especially those who are doing a good job. It is also unlikely to happen everywhere ubiquitously, which can damage morale and productivity over the long term.

Nevertheless, whatever the reason, some businesses have announced pay cuts.

For example, General Motors furloughed 6,500 of their salaried workers at 75 percent of their pay. BuzzFeed has implemented a graduated salary reduction for April and May where employees making less than $65,000 will incur a 5 percent pay cut and those who make $125,000 will incur a 10 percent pay cut.

Some companies, especially small businesses, are taking even more aggressive measures, cutting employee pay by 20 or 30 percent in order to keep more workers on staff. However, this isn’t only true for small businesses. Aon has also announced that 70 percent of its employees worldwide will see a 20 percent reduction in pay.  Pay cuts for executives are especially becoming more common.

The University of Toledo, meanwhile, is reducing pay by putting the majority of its staff on graduated furloughs, essentially requiring all employees to take between one and three days unpaid vacation within a given time period depending on how much they make.

Then again, some employees are receiving raises. According to our survey, 3 percent of employees received pay increases just in the last two months. Although some of these might be essential workers, some might also be top performers or employees working in industries less affected by the pandemic that want to continue to reward workers.

In another poll by SHRM, 57 percent of organizations said they already gave raises for 2020 while 17 percent have said they plan to cancel raises in 2020. Among large corporations, 12 percent have reduced or delayed salary increases while only 8 percent have frozen pay increases for 2020. Some of these decisions may have yet to take effect and it is uncertain whether the decisions have been communicated to employees.

Are Employees Exposed to Covid-19 Getting Hazard Pay?

Whether or not employees exposed to the coronavirus through work are eligible for hazard pay has been a rebounding question with no definitive answer. As we reported in March, many employers operating essential businesses have given temporary wage increases to their retail associates, warehouse workers, and truck drivers, most commonly to the tune of an additional $2 or $3 an hour or as some kind of lump bonus sum. However, there hasn’t been a lot of data on how many organizations have issued hazard pay holistically, especially as not all organizations are calling temporary increases hazard pay.

Hazard pay is defined by the U.S. Department of Labor to mean additional pay for performing hazardous duty or work involving physical hardship. This means that the work causes extreme physical discomfort or distress not alleviated by protective gear. Whether exposure to the coronavirus meets this definition is unclear.

Hazard pay is not actually mandated by federal law–at least not yet. The Fair Labor Standards Act (FLSA) does not address the subject, except to require that it be included as part of a federal employee’s regular rate of pay in computing the employee’s overtime pay. It is usually provided as an incentive to encourage applicants for dirty, difficult or dangerous jobs.

However, employees definitely want hazard pay — or “hero pay” as some are calling it — especially healthcare workers who have been laboring under intense pressure without adequate protective equipment, putting themselves and their families at risk. Many of the ordinances issued at the end of March to carry through April have stopped despite that the coronavirus is still a threat. Legislation for hazard pay to compensate essential workers and workers who can’t work remotely have been proposed in Congress, but no bills have passed yet.

As for what organizations are planning, a poll by WorldatWork found that 26 percent of companies say they plan to give some kind of hazard pay, with 9 percent intending to give a cash incentive in a flat dollar amount, 9 percent planning to give a cash incentive based on a formula, such as a percentage of salary, and 8 percent planning to give an incentive based on shift or hours worked. Whether this pay will be applied retroactively is less clear. According to PayScale’s online survey data, employees who have actually received hazard pay in the last two months is only 4 percent.

hazard pay during coronavirus

Because of the complexity and potential liability of the situation, organizations considering hazard pay or whether or not they need to supply protective equipment should consult an attorney for legal guidance in both what to do and how to communicate about it.

Conclusion

It’s a whole new world and the future remains uncertain. While government officials discuss whether and how to start reopening businesses to jump-start the flagging economy, the coronavirus remains a national threat to public health. Although hospitals are getting smarter about the coronavirus and some treatments are starting to look promising, there is not a vaccine and no estimated date for when one will become available. Some say that reopening the economy now is still too risky. Others say that allowing a deep recession to take hold would be more dangerous and possibly more lethal.

Amidst all this uncertainty, HR leaders and business owners have to make decisions about what to pay the workforce. The right decisions will vary by industry and individual company. Most organizations seem to be operating business as usual, continuing to pay employees the same and possibly giving bonuses and merit increases to reward performance. Some organizations may need to provide hazard pay or bonus incentives. Others may need to consider reducing hours, shortening work weeks, or issuing pay freezes or pay cuts. Regardless, we can all hope that whatever measures are needed are temporary and will revert when the situation starts to improve.

Interested in learning more about how PayScale’s compensation data can help your business during the coronavirus and economic crisis? Contact us for a demo.

Amy Stewart
Sr. Content Marketing Manager at PayScale
Read more from Amy

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