Should business owners change employee salaries during Covid-19?

With the UK government forced to implement extreme measures to halt and contain the spread of the Covid-19 pandemic, most businesses have had to change how they operate.

Since the March lockdown, those businesses that have been able to continue operating have largely done so with their employees working from home. In April 2020, 46.6% of people in employment did some work at home (Source: Office for National Statistics). Commercial premises across the country have been unoccupied for large parts of the year as a result. This has had a significant economic impact on our city centres. 

Millions of businesses have taken up government support, such as the Coronavirus Job Interruption Scheme, in order to survive. As many as 7 in 10 firms have furloughed staff (Source: British Chamber of Commerce). Financial pressures have forced jobs to be cut with that number likely to increase as support is scaled back.

The continuing uncertainty has prompted business owners to take action to ensure both their short and long term survival. One of the long-term outcomes might be more businesses operating a remote-workforce. A recent PWC survey of CEOs found that 86% of them believe the shift towards remote working will endure. 

The Covid-19 pandemic has accelerated the trend towards remote-work and prompted questions about whether this could become the norm. Advances in technology certainly make this a more feasible possibility than it once was. Business owners will look favourably at the cost saving as well as the other benefits this could bring:

• Less time commuting
  The average UK commute time in 2019 was just under an hour. Whether it’s driving in rush hour traffic or packing onto a crowded train, that journey to work is often stressful. It’s also a significant expense – UK train fares are the highest in Europe. 
• More flexibility
  Not having to base your schedule around a work commute should mean a more flexible work-life balance and improved mental health for you and your employees.
• Better productivity
  A 2020 study from Finder.com found 65% of workers said they would be more productive in a home office than a normal office. 83% said they did not need to be in the office to be productive.
• Reduced office costs
  Renting office space is an expensive overhead. Operating a reduced capacity office or having an entirely home-based workforce could lead to a significant cost saving.
• Larger candidate pool
  Having a home-based workforce allows you to cast the net much wider in terms of recruitment. With location no longer a factor, you can potentially fill the skills gap in your business with a larger pool of candidates.    

Home working has always had its critics and many businesses are still reluctant to embrace it fully. Whilst some of these criticisms are unfounded, there are certainly drawbacks.

• Less visibility
  In an office it’s much easier to have an oversight of what your staff are doing. Home working requires placing trust in them to work effectively away from the office without supervision.
• Reliance on technology
  Whilst technology has enabled remote working to be much more effective than it once was, there’s still the possibility of problems. Internet downtime, server outages, and system issues can get in the way of work being delivered.
• Less camaraderie
  Whilst not impossible, it’s much harder to build a company culture with a remote workforce. The lack of day-to-day interaction with colleagues that you’d have in an office can mean staff feel less connected and bonded to one another.
• Unsuitable environment for work
  Not everyone is in a situation to work effectively from home. Living with a large family or in shared accommodation can mean there’s lots of distractions. Equally, not everyone is blessed with a suitable home workspace. 
• Isolation and motivation
  Everyone is wired differently and some people cope with remote working better than others. For those who bounce off close social contact with others, it can be a struggle. Staying focused and motivated can be difficult without others to provide the stimulation.

Many business owners will be looking at their staff costs with renewed scrutiny given the financial pressures they’re facing. Job roles may need to be made redundant as a result of reduced activity and turnover.

However just as job cuts should be avoided as much as possible – so too should salary cuts.

Firstly, your employees are under contract and therefore under no obligation to agree to a pay cut. It’s illegal to impose a reduction without their permission.

You may be able to win consent with your workforce to take a pay cut if you can convince them that the business’ survival hinges on this happening. There are examples of companies who’ve implemented temporary companywide pay cuts due to Covid-19.

However, it is advised that businesses look at other ways to be cost effective before taking such a drastic step. 

• Can you look to negotiate different terms on your office lease? Have you explored the possibility of moving to a full-time remote work model?
• Can you offload assets that you no longer require and move to cheaper leasing arrangements?
• Can you negotiate discounts with key suppliers?
• Can you look for cost-effective all-in-one software solutions? For example, is your business bank account the best one to serve your bookkeeping and accounting needs?
• Can you move marketing activity to other low-cost channels?

Conversely, there are businesses who have given their staff a pay rise as a recognition for their hard work during the pandemic. Aldi gave their staff a 10% pay bonus back in March.

Whilst that may not be possible right now, looking at your costs across the board and making savings will hopefully put you in position to reward your staff at some point in the future. Free business bank accounts are on way to help you monitor outgoings to evaluate your ability to offer bonuses or make cutbacks. 

In the long-term, if remote working does become the norm, there will need to be a reappraisal of salary levels. Typically, City-based roles and salaries are weighted to factor in the competitive job market and the higher cost of living. If employees are not commuting to work, and based on the other side of the country, your business location should have less bearing on the wages you pay. This could alter where businesses choose to set up and how they recruit.