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COVID-19 Lessons: Managing the Necessity of Reducing Human Capital Cost

Written by Salary.com Staff

October 6, 2020

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The COVID-19 pandemic presented challenges that no one expected. It was a global event that affected everything. It had a major impact on the health sector. Aside from that, it also affected all types of businesses.

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There were many changes that companies needed to go through. These changes were crucial as businesses try to adjust to the crisis at hand. As a result, there were crucial decisions that they needed to make. Many of these involve managing compensation and the workforce.

Effects of COVID-19 on Employment

Many would say that COVID-19 sparked a major crisis in many ways. One of the major impacts was on the health care sector. There were also nationwide restrictions and lockdowns. As a result, there were businesses that willingly closed for the safety of the public.

These events created ripple effects across the globe including the United States. Experts say that the effects of the pandemic were the worst ever since the Great Depression. This is true especially for the employment sector. There were firms that needed to take measures to manage the employment concerns during the pandemic. These often include furloughs, layoffs, and salary reductions.

Furloughs

One of the most common ways a company uses as a cost-saving measure is furloughs. This is when a business requests a worker to take a temporary leave of absence. This can last for as long as the company wishes. Firms use this method if they do not have resources to pay workers but do not want to lay them off.

This is common with seasonal businesses. They would often furlough workers during off-peak months. This means that a worker under furlough will not receive salary but still is employed by the company.

Furloughs can involve a reduction of work hours or complete pause of all tasks. Firms must pay a non-exempt worker by the number of hours they have worked in cases of reduced work hours. This strategy can save a company the obligation to pay a non-exempt worker their usual salary.

Layoffs

On the other hand, layoff is the separation of a worker from the company. This often happens when there is a lack of available work within a company. This event can be temporary in which the firm can recall workers. But in some cases, it can also be permanent.

There are companies that allow separated workers to still receive benefits for a certain period. They do this in the hopes of urging workers to be available for recall.

Salary Reductions

To reduce labor cost, there are firms that resort to pay cuts or salary reductions. They use this instead of laying off workers to preserve their workforce. But salary cuts can be a tricky and sensitive choice. For this reason, companies need to be careful in applying salary cuts.

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How to Implement Fair Salary Reductions

Salary reductions can save a company from laying off workers. But they should not take this strategy lightly. Firms need to take caution and consider the following practices to ensure the execution of a fair salary reduction.

  1. Leaders should set a good example.

During times of crisis, it is critical that top management should take the lead. This goes the same if a company considers salary cuts. There were company officials that took the lead in cutting their salary during the COVID-19 pandemic.

  1. Be open and transparent about salary reduction plans.

Conveying plans for reducing salaries is critical. Firms must be open and transparent when it comes to this topic. They need to explain the reasons for making the decision to cut salaries.

At the same time, they also need to explain how and when the process will take place. In addition, they should inform the affected workers how much will the reduction be, and for how long.

  1. Be consistent and fair.

Firms must apply this strategy consistently and fairly. This means that workers doing the same functions should also have the same salary cut. In addition, local and foreign workers should have the same treatment.

  1. Giving proper notice.

Salary cuts will without a doubt affect workers in a major way. For this reason, firms must give proper notice to everyone affected by the pay cut. This will give workers enough time to adjust and work around their budgets.

  1. Do a review and assessment.

Lastly, companies must review and assess their current situation. It is critical that they need to know when they can lift the salary cuts. Reviewing and assessing their current standing will give them an idea of how to move forward.

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The COVID-19 pandemic left many lessons for many people. Businesses learned new strategies and new ways of handling employment concerns. More importantly, most businesses overcame the challenges and are on the way to recovery.

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