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Pay freezes could put HR in a difficult position

?HR will need to properly communicate how and why pay freezes are being put in place in order to avoid scrutiny in the year ahead.

According to the latest monitoring figures by research company Income Data Research (IDR), pay freezes have accounted for 16% of all pay outcomes this year - a sharp rise from around 3% in 2019.

In 2020 the proportion of pay freezes grew from 9% in the first quarter of the year to 15% in the second quarter.

Pay freezes peaked over the summer (from May - July) at 34%, but have since fallen to 21% for the three months to October.

Charles Cotton, CIPD senior policy adviser told HR magazine: “We have seen employers using a variety of tactics to stave off redundancies during the pandemic. This includes pay freezes, which can limit large-scale job cuts while the business is struggling.’

He said that such decisions will be scrutinised by employees, investors, politicians, consumers and journalists.

“Therefore, it’s crucial that HR teams consult with staff and clearly communicate what’s being done, why, how and when. It is essential that HR puts policies and procedures in place to make sure that any changes do not inadvertently impact unfairly on certain groups of workers,” he added.

Further reading:

Low pay rises forecast for 2021

Post-pandemic pay cuts on the horizon, bosses warn

More stability in sight for employment, reports CIPD

Pay freezes have been most common in the retail and hospitality sector, as they were classed as ‘non-essential’ during the national lockdown and were unable to open.

Eugenio Pirri, chief people and culture officer at The Dorchester Collection told HR magazine that hospitality, like many service industries, has been hit hard COVID-19.

He said: “Ensuring long term employment of people within the industry should be the priority and therefore continued work and payment of wages remains the key focus. As the industry recovers, so will the focus on pay increases and long-term job security.”

IDR’s data showed that 51% of pay freezes this year have been in private sector services.

A freeze on public sector pay rises was also announced for 2021 in chancellor Rishi Sunak’s spending review.

With fewer pay rises, more employee recognition could be the most effective way to re-engage the workforce according to a survey from engagement software provider Achievers.

Benefits such as flexible working and access to wellbeing apps, could make up for a lack of pay rises.

Lord Mark Price, former MD of Waitrose and founder of Engaging Business, told HR magazine: “By recognising an employee’s needs as well as their hard work, you will re-engage them and forge a healthier relationship.”

IDR’s analysis is based on a sample of 352 pay awards effective between 1 January and 31 December 2020 where the median pay rise is 2.4%.