Gallagher’s HR and Compensation Consulting practice answer questions on labor costs and employee salaries with COVID-19.

Several clients have contacted us regarding the cost of labor increase rate they should currently be using to update their salary ranges. This is often followed by inquiries on how other employers are paying their employees amid the COVID-19 situation.

Following is a series of questions our clients have recently asked, various ways organizations are approaching these questions, and key considerations as you develop a strategy to address your unique business needs.

What best fits your needs and circumstances may or may not “fit” with what others are doing or are not doing. In all cases, communications to employees about the actions you are taking or are not taking and why are critical to maintain and build employee trust during this difficult time. Communication with staff may be more important than any compensation action.

At Gallagher, we’re here to serve as your sounding board, advisor, confidant, partner or whatever you need, to help tackle questions during this time when there are no off-the-shelf answers. Our job is to help you face the future with confidence now more than ever, to support your organizational wellbeing and those you serve.

Q: Should we be paying increases at this time?

A: The answer to this question is not a simple yes or no. The first step is to consider your organization’s unique business continuity situation. This perspective will help guide your decision-making.

Consider the following questions. This list is by no means all-inclusive, but is based upon our experience in times of financial uncertainty, as well as the unique circumstances of today’s environment.

  • How stable are your current revenue sources?
  • What part of your essential service workforce can work vs. on-site?
  • If your company can support a work-at-home workforce, must some roles be performed on-site to support business continuity? Examples may include payroll, accounts payable/accounts receivable functions.
  • Do any on-site roles take place in the back office? Are they customer-facing, but do not require direct customer contact, or do they take place on-site and require direct customer contact?
  • For patient in-person facing roles, are your employees at risk of leaving to join other organizations, and/or do you need to quickly attract others to join?
  • If your staff cannot work remotely and do not fall into the essential service category, will you be laying off your workforce so that they can obtain unemployment? Or will you provide income continuity for some period of time regardless of ability to work?

In all cases, communications to employees about the actions you are or are not taking and why are critical to maintain and build upon employee trust during this difficult time. Again, employee trust may be more important than any compensation action.

Q: If my organization is implementing our already-scheduled salary increases, what cost of labor factor we should use to update our pay structure and ranges?

A: For the past several months, based upon information from WorldatWork, the Bureau of Labor Statistics, and surveys conducted by Gallagher, our recommended cost of labor increase has trended between 2.8% and 3.2% for most positions.

This is a general cost-of-labor increase factor. The range reflects the differences in local cost-of-labor markets across the country. As with any market projection, not all jobs in all geographies will move at the same rate. And some “hot” positions in the market may move at a higher pace. Examples include nursing and in hospice operations, social work positions. These determinations can only be discerned on a job-by-job basis using legitimate market data.

Given the constantly changing COVID-19 situation, the answer to the question, “what cost of labor increase factor should we use to update our structure for the year?” is not simple. As a first step, assess your business model and unique business continuity situation. This assessment will help you think through actions that make sense at this juncture.

Q: I keep hearing about some organizations providing “hazard pay.” What is hazard pay and should we be doing it?

A: While many news outlets have used this term, hazard pay is defined by the Department of Labor as follows:

Hazard pay means additional pay for performing hazardous duty or work involving physical hardship. Work duty that causes extreme physical discomfort and distress which is not adequately alleviated by protective devices is deemed to impose a physical hardship. The Fair Labor Standards Act (FLSA) does not address the subject of hazard pay, 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.

What many people refer to as hazard pay is actually premium or incentive pay to return or remain at work. Employer practices in this area are highly variable. For essential on-site required services, some employers are considering temporary premium pay for roles that pose a high risk to the organization if not retained. For example, some healthcare providers have increased hourly rates as a means of retaining critical staff.

Meanwhile, other employers are not providing premium pay out of concern for setting a precedent and longer-term business impact. Employers are varying incentive pay amounts by position and local labor market conditions to include labor supply, competitor practices, as well as short- and longer-term considerations.

If you do decide paying additional wages for key roles is appropriate, we generally recommend flat dollar-per-hour amounts over percent of pay approaches in any premium pay arrangement. This approach offers the advantage of financial predictability, provides an equitable pay practice approach, and can be communicated clearly and simply.

Questions to explore include:

  • Which positions would be eligible for premium pay and why?
  • How long will designated positions be eligible for premium pay?
  • Under what conditions will premium pay continue? Be discontinued?
  • How will you account for changes in local labor market supply and demand moving forward?

Q: Our organization’s revenue sources currently are very unstable. How should we address pay?

A: There is no one answer to this question. The following are examples of what some organizations are doing. These actions may or may not provide the right answer for your organization.

  • If revenue sources are highly unstable, consider holding increases.
  • For essential, on-site required services, some employers are implementing temporary premium pay for roles that pose a high risk to the organization if not retained. We recommend flat dollar per hour amounts over percent of pay approaches in any premium pay arrangement.
  • If your workforce largely is unproductive because of access issues, but you will maintain them on payroll for some period of time, it makes sense to hold pay increases and assess whether or not unproductive pay is sustainable.

Communicate, Communicate

We can’t emphasize enough the importance of communicating frequently with employees about the compensation actions you do or do not take, and why. Maintaining employee trust and loyalty during times of stress and uncertainty will strengthen organizational wellbeing more than any compensation action.

Please contact us with any questions you may have. Our goal is to help you weather this time and to face the future with confidence.

Consulting and insurance brokerage services to be provided by Gallagher Benefit Services, Inc. and/or its affiliate Gallagher Benefit Services (Canada) Group Inc. Gallagher Benefit Services, Inc. is a licensed insurance agency that does business in California as “Gallagher Benefit Services of California Insurance Services” and in Massachusetts as “Gallagher Benefit Insurance Services.” Neither Arthur J. Gallagher & Co., nor its affiliates provide accounting, legal or tax advice.