Payroll Briefs

Creating a Post-Pandemic Compensation Strategy

August 27, 2020

One of the most complicated challenges to navigate amongst the nationwide COVID-19 shutdown is making decisions about employee pay. Since the pandemic is truly the most unprecedented event in our lifetime, there are no set instructions or past experiences to explain how employers should proceed, especially with something as sensitive as pay. However, all employers must attend to employee pay with an air of caution, as any wage-related decisions made now will impact a company for years to come. DM Payroll Solutions further explores how you can navigate the uncertainty surrounding compensation and strategies you can use to assist in your decision making.

Continue to Expect the Unexpected

Realistically, the pandemic will continue to play out through the end of the year and possibly into 2021, meaning more spanners will likely be thrown in the works for businesses across the country. While there’s no telling what these complications will be, business owners should plan to be agile when addressing pay-related changes. For example, some companies have provided their production teams with bonus and hazard pay to continue operations during the pandemic. However, this may mean salary reductions across the board and the elimination of raises to balance out the increased production costs. Planning future pay for employees requires a great deal of sensitivity, so business owners should prepare for potential:

  • Decreases in salaries (across the board or for certain departments)
  • Increases in bonus pay for front-line staff
  • Reevaluation of compensation incentives (Christmas bonuses, uncapped commissions, etc.)

Compensation Challenges

If your business has fewer than 500 employees and received emergency economic recovery funds via the Paycheck Protection Program (PPP) or the Economic Injury Disaster (EIDL) program, you’ve likely begun to uncover compensation challenges within your organization. For example, PPP loans have restrictions on paying bonuses to high earners. Bonus pay is a portion of total compensation that cannot exceed $100,000 per employee, so if an employer who receives a PPP loan pays an employee a bonus and they’re already making $100,000, the employer’s loan may not be forgiven. EIDL loans are also restricted when it comes to paying bonuses or wages above $100,000 per employee.

The lack of incentive pay has led some companies to get crafty, increasing salaries to effectively bake in bonuses staff would otherwise receive but cannot because of the loan programs.

Pay Planning Strategies

Now that employers are beginning to plan employee compensation not just for the rest of the year, but also 2021 and beyond, there are some key areas to consider in order to thrive in a post-COVID-19 marketplace. Employers should place a great deal of focus on:

Taking Time to Consider the Possibilities

Where will employees be working, at home or in the office? What new tools or software will be required to work efficiently? How many employees will your business need to function? Understanding these answers will provide a basis for compensation moving forward. In these uncertain times, balancing short-term costs with business resiliency will allow your business to bounce back stronger than ever.

Reevaluating Past Pay Practices

Given the uncertainty of compensation for the remainder of the year, reconsidering your company’s pay structure is a potential option. Some organizations that wish to increase flexibility are considering skill-based pay, allowing them to pay for skillsets and differentiate pay using experience-based incentives.

For many companies, employees working remotely is the new normal for the foreseeable future. Since many employees have settled in at home and are no longer working in high-cost urban areas, localized compensation proportionate with lower costs of living has been proposed by companies such as Facebook.

Offering Other Incentives

For those employees heading back into the office, value (for some) has been shifted from monetary incentives to overall flexibility to help cope with the everyday challenges COVID-19 has brought about. For example, employees may react positively to flexible scheduling for childcare as many schools are questionable about reopening.

Keep Communication Open

Moving forward, employers should be prepared for a great deal of uncertainty when setting pay, and that is standard across the board for millions of companies. However, this does not mean employees should be left in the dark. Whether toying with the notion of cutting pay raises or reducing retirement plan contributions, being upfront with your employees as soon as possible with an informed statement is key to transparency within the organization. The pandemic has taken a toll on everyone in the country, so if you need to pay your employees less toward the end of 2020, be sure to navigate the situation with care. If this is a temporary solution for your business, reassure your employees that the adjustments are due to circumstances out of your control and are not permanent. Your team will respect your candor and understand that as the business continues to recover, so will employee pay.

If you need assistance updating your employees’ pay, making changes to retirement contributions or managing new work schedules as a part of your compensation strategy, contact DM Payroll Solutions today.