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Can We Reduce Pay For COVID-19 Related Economic Slowdowns?

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It all started with the restricted office visits and extra precautions. Then came temporary lockdown and last but not least, mass layoffs by companies trying to make it through the COVID-19 crisis.

Some held onto the hope of things normalizing soon, hence the option of reducing pay instead of doing something as drastic as laying people off. This cost-cutting reflex is understandable but has not been widely accepted as the best option.

Here are some questions and answers on how to help you decide whether or not to reduce pay, and how to handle a pay cut:

Does An Economic Downturn Really Force Employers To Cut Pay?

From furloughing to certain percentages of pay cuts based on how much employees earn, some of the biggest and most established companies in the world have had to do so in response to revenue losses, even if it’s temporary.

Difficult times, especially pertaining to the COVID-19 pandemic, have led to the evaluation of human capital costs. Desperate situations certainly call for desperate measures to survive, and if a company is operating at a loss, it’s only reasonable to reduce spending.

However, some companies can stay afloat even when there’s a downturn because of the nature of goods and services they provide. If a company is lucky enough to specialize in products and services with inelastic demand, it’ll likely not operate at a loss and, in turn, will not need to cut pay.

Can Cutting Pay Be A Bad Sign For Recovery?

While a pay cut is a sacrifice employees have to make in a bid to control the damage, it might not necessarily be for the best in terms of economic recovery. Apart from doing very little to boost morale, many people try to play safe by saving more money due to the uncertain nature of the period. When spending is low, businesses are adversely affected.

When Can Companies ‘Get Away With’ Pay Cuts Or Layoffs?

First, the company will need to be honest and open with its employees and avoid making them second guess what the plans going forward are. Let them know the health of the organization and what your priorities are to stay afloat. They’re human and understand the situation is out of everybody’s control. Though a decision not in their favor might be hurtful, how this is handled goes a very long way.

When Hours Are Cut Due To COVID-19, Does An Employer Have To Repay The Hours Employees Would Have Worked?

We all wish that were a thing, don’t we? Sadly, this is not the reality, and the employer is only required to pay for the actual hours worked. As there wouldn’t be output from when employees don’t work, employees cannot factor time scheduled to work, which was not utilized because of a schedule change.

If Your Office Closes And Moves To A Work-From-Home Model, But An Employee Cannot Perform Their Job At Home, Are You Still Required To Pay The Employee?

Again, the employer is only required to pay for the actual hours worked, and it must be at least the minimum wage. This is subject to limited exceptions.

With a salaried exempt employee, can the employer require them to use their accrued leave (paid time off or vacation) during office closures due to COVID-19 or any other unforeseen circumstances?

Salaried (“exempt”) executive, administrative, or professional employees must receive their full salary anytime they perform any work, subject to certain minimal exceptions. An employee will not be considered to be paid “on a salary basis” if deductions from the salary are made for absences caused by an office closure during a week in which the employee performs any work. However, exempt salaried employees are not required to be paid their salary in weeks they do not work.

The employer is not required to provide paid time off or paid vacation time. And in the case of the employer providing such benefits, it may require using accrued paid time off or vacation time to cover an office closure during a week in which you perform some work. If your employer requires the usage of paid time off or paid vacation time during office closures, the use of such benefits will not affect salary payment. In the case of a partial week office closure, an employer may direct salaried employees to take vacation time or debit their paid time off to leave the bank, whether for full or partial days, provided the employees receive an amount in payment equal to their salary.

A salaried exempt employee who has no accrued leave in the leave bank account or has limited accrued leave would have the reduction resulting in a negative balance in the leave bank account. They can’t be left out of their salary for any absence(s) occasioned by the office closure in order to remain exempt.

Speaking of telework, is an employer required to cover any additional expenses that employees might incur if they work from home (internet access, system, phone, increased use of electricity, etc.)?

An employer may cover the costs for items that are classified as business expenses if the employee has paid out of pocket for the costs. However, if the employer provides the systems and resources needed to work from home, the employer may not require you to reimburse these costs.

If employees are required to complete a COVID-19 health screening during the workday, will they be compensated?

If employees are required to complete a health screening when they’re meant to be at work, they’ll need to be paid, as that would just mean they’re being forced if they don’t get paid. All the time between the start and finish of an employee’s workday must be paid unless it falls within one of the exceptions, such as meal breaks and when they’re off-duty.