Managing headcount costs during COVID-19: A guide on the right way to do things, morally and legally
Over the recent weeks, the team at Salt have been in touch with people who have been forced into extremely unfortunate situations, having been given large pay cuts, unpaid leave, and redundancies due to the COVID-19 crisis.
We are trying our best to support everyone on the look-out for employment. We also want to help employers and business owners who have been put in difficult situations, where they have no choice but to reduce costs in line with new revenue expectations. Several employers have said that they are concerned about remaining compliant with UAE Laws and many are not aware of new regulations that support employers.
To support the start-up community, we have put together a simple step-by-step guide (as per the latest guidance from UAE Labour Law) on how to reduce costs via the most ethical and law-abiding process.
Legal measures
The depth of cost-saving measures taken will vary for each business, but it’s worth noting the latest decree from the UAE Government. Companies are allowed to take the following measures:
1. Apply a remote working system
2. Grant paid leave
3. Grant unpaid leave
4. Temporarily reduce salary during the mentioned period
5. Permanent reduction of salary
Measures 3, 4, and 5 require mutual employee and employer written agreements. However, employers do retain the right to terminate employment contracts (so long as they fulfill their obligations regarding notice period and end of service benefits). The majority of candidates Salt have engaged with would accept some of the measures above, rather than risking redundancy in the current crisis.
5 ways to reduce costs
Remote working:
Remote working can be imposed by employers to their workforces without the need for additional contracts or employee acceptance. Several startups we have worked with have been able to realise real cost savings from moving to a remote working model. For example, rents might be reduced or cancelled and fixed phone lines, DEWA bills, and office maintenance are all reduced. If a company is marginally behind its breakeven level, a remote work solution may bring costs back in line without the need for changes to employment conditions.
Enforcing paid leave:
Where an employer expects a pickup in work volume in the second half of the year, a granting of paid leave will allow an increased work capacity inline with when workflows increase. This can lead to an increase in revenues later that may mitigate a drop in revenue in the current environment. This is especially effective in firms such as consultancies where people are pitched to companies on a utilisation basis. Companies do not need to request employee or Ministry Of Human Resources and Emiratisation (MOHRE) permission to enforce dates of paid leave.
Granting unpaid leave:
If work for an individual has completely dried up, you may wish to extend the period of paid leave to include some unpaid leave. This will be a finite period and must be agreed to in writing by both the employee and employer. The employee generally would wish to take this on the hope that their role will remain valid and they can rejoin after the crisis is over. It can be challenging to agree on the exact length of an unpaid leave period with an employee.
Temporary reduction in salary:
Where workers are still required, but an overall reduction in salary costs is also required, a temporary drop in salary might be the best solution. Salt has seen drops in pay between 10 and 50% implemented successfully thus far. A temporary reduction in salary is detailed using an appendix to current employment contracts and therefore is a cheap and quick solution for a temporary measure to support cash flow. MOHRE have a pro forma contract appendix that will need to be signed by both the employee and employer to be valid. MOHRE can also request signed copies of these appendices as required.
Permanent reduction in salary:
Where it is expected that an employee will permanently add less value than prior to the crisis, a permanent reduction in salary might be worth considering. A change in salary is actioned through a change request to an employee’s employment contract. There are fees and paperwork associated with such a change that can range between AED 1000-3000 per contract (depending on whether the firm is onshore or free zone and PRO arrangements). Employer risks associated with a permanent reduction in salary include staff attrition to companies paying regular market rate, a drop in motivation levels, and increased stress levels for employees who struggle to meet existing financial commitments.
MOHRE states that the company should be able to demonstrate that alternative steps as above have been considered/taken before moving to implement harsher measures such as redundancies. If a case for redundancies is made, employers remain liable for employees' housing allowance for the foreseeable future until the employee can return to their own country or secure new employment.
Tips for roll-out
If an employer does decide to opt for one or more of the measures above, Salt would recommend that a communication plan is put in place clearly explaining the following:
• What measures are being proposed
• What the employee’s rights are as per MOHRE guidelines
• Why the measures are being introduced
• Who the measures will impact
• Under what circumstances the measures will be retracted
• What further measures may be imposed and when
Communication should be empathetic to the real impact on people’s lives and highlight the need for solidarity in the face of extreme circumstances. Generally, we recommend communication takes place one-on-one (via video conference) in a private setting to allow employee feedback to the proposals to be taken on board and their questions answered. Even if you ultimately end an employment relationship, you will want to leave on the best possible terms with the individual.
Being creative with a combination of the above options can help to mitigate the impact of the crisis, whilst ensuring the best possible readiness for an employer to take advantage of a future rebound in trading conditions.
Should you wish to get further impartial advice on any hiring related topic, Salt’s team of digital recruitment experts stand ready to support. You can reach Richard Smith, Regional Director Salt MENA by emailing [email protected]
We wish the whole community all the best of luck in these challenging times and hope that the tips mentioned help firms ride this wave back to profitability and a bright future!
Despite the COVID-19 crisis, MENA's startups saw an increase in funding in Q1 2020. Find out more in our Q1 2020 MENA Venture Investment Report which is hot off the digital press.