How businesses should manage post-pandemic reward

Helen Snow explains what employers need to know before making decisions about pay rises, pay cuts and bonuses in light of the Covid crisis

The Covid-19 pandemic has had a wide range of complex, long-lasting and far-reaching effects on the economy, employment and the way we work. For every employer and employee that suffered as a result of the pandemic, there has been an equal number that prospered. For some, it’s business as usual, while for others the nature of employment has changed dramatically and permanently.

In this context, making decisions around pay and related matters such as bonuses has become a more complicated and challenging task for employers. This is not necessarily because employers are seeking to change their policies and practices on these matters as a result of the pandemic – the determinative factors by and large still depend on criteria that have already been established. Rather, it has more to do with the fact that market trends and employee behaviour are driving a shift in expectations.

For example, the switch to home working was, for many employees, a positive move, allowing them to avoid the expense and hassle of the daily commute and to work more flexibly around their own lives. Post-pandemic, this is set to become a permanent change for many. The option to work remotely has opened up the geographical scope of organisations for which individuals can work.

For employers offering this new way of working, this is a double-edged sword. While they might be saving on the overheads associated with a physical workplace, they are also competing for employees across the country. This means they might be considering new financial incentives such as pay rises and bonuses.

In some sectors, for example, retail, hospitality and haulage, there are major shortages of staff as a result of multiple factors. Employers in those areas might also be looking to increase their pay offer to attract and retain employees.

In doing so, employers will need to be mindful of the fact that paying higher salaries and bonuses to attract employees may have implications in terms of equal pay and discrimination claims if differentials between current and new employees cannot be justified.

On the other hand, some employers have suffered as a result of the pandemic, and might be considering reigning in the spending with pay freezes or even pay cuts. Employers will need to consider carefully the legal implications of such strategies.

Before making any decisions, employers must understand their contractual obligations to staff. This will require a review of their employment contracts. Ordinarily, employees are unlikely to have a contractual entitlement to increases in pay, as most contracts of employment will state that pay reviews and increases will be at the discretion of the employer.

However, if there is a contractual obligation to increase pay, for example, a built-in three-year pay progression, and an employer wants to freeze or cut pay then this will amount to a variation of contract, which will require the employee’s agreement or termination of the contract and re-engagement on new terms.

This could expose the employer to unfair dismissal and breach of contract claims. If there are more than 20 employees involved, employers will also need to be mindful of their collective consultation obligations.

Employers will also need to be mindful of the fact that proposed pay freezes or pay cuts could result in industrial action where the workforce is represented by a trade union.

Consistency is key. Employers cannot award pay increases or impose pay cuts to a certain proportion of the workforce and not others without justification for it. In relation to bonuses, employers must ensure that they are fair and equitable across the board and there should be transparency and fairness in the process.

Helen Snow is a senior associate for employment at Geldards LLP