Post-pandemic pay cuts on the horizon, bosses warn

?Remote culture could drive future pay-cuts for UK employees as the government’s furlough scheme runs out in October.

Many businesses are now having serious discussions about remote working and managing company expenditure, with research by equity management platform Vestd finding 14.9% of SMEs are currently planning pay cuts for their employees.

A further 48% said there will be a pay freeze in place for the next 12 months.

Ifty Nasir, CEO of Vestd, told HR magazine: “The impact of pay cuts will affect HR professionals on three fronts: talent acquisition, employee retention and company culture.

"The hiring pool is likely to increase in the next year or so as some people who have been affected by pay cuts will look for new opportunities. However, it will be difficult to attract these people if salaries are reducing or stagnating at your company. HR managers may also find it tough to keep hold of their own employees. Nobody likes a pay cut."

In a separate Twitter poll run by Jeremiah Owyang, founder of US research firm Kaleido Insights, 44% of respondents said they would be willing to take a 10% pay cut to work from home. A further 24.3% said they would rather go into the office, yet 31.7% said they'd start looking for another job if they were to be paid less.

Addressing this poll, and through speaking to peers, Jonathan Ratcliffe, senior broker at office rental company, said that he believes the pending recession and home working trend will see the job market "blown to pieces."

Speaking to HR magazine, he explained: "Employers are against serious economic pressure to reduce costs, just as home working reduces the factor of location into the job search - if you only need to attend a central office once a month, does it matter where you live?

"Therefore bosses will be able to employ people on a national scale, not local. In London, it might mean they employ more from the North, where wages are lower - if you live in London the impact on your wage will therefore be driven down by market economics."

As an example from the US, Facebook employees that plan to continue working from home post pandemic who are not based where the cost of living is high, for example the San Francisco Bay Area, should expect to have their salaries adjusted accordingly.

A similar trend is expected to arise in certain sectors across the UK. Richard Fox, employment law partner at Kingsley Napley, told HR magazine: "To keep redundancies to a minimum, one way for employers who wish to keep their existing complement of staff will be to ask them to take less pay or work less hours (which, in truth, can sometimes be a bit of a “fiction” depending upon actual workloads). Many law firms, for example, are reportedly following that path."

Businesses that have seen a dramatic change in demand for their products and services are also looking to adjust staff levels, Fox added, saying: "For that reason, we are seeing an uptick in enquiries from our clients wanting to convert furlough situations into redundancy programmes. We expect that trend to continue I am afraid.

"It is unfortunately going to be a really difficult time ahead in the City and elsewhere whilst these processes work themselves through."

Vestd's findings about pay-cuts in SMEs were based on a survey of 500 founders, owners, partners and C-level executives in the UK. Jeremiah Owyang's twitter poll about remote work and pay cuts closed on 19 May 2020, and received 717 votes.