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COVID-19: Will salary cuts be the new normal in UAE?
Dubai: Have you got back the 30 per cent? In the next few days, more of UAE’s workforce will start seeing their full September salaries get credited into bank accounts as employers roll back the wage cuts they implemented after COVID-19 struck.
But the reinstating of full salaries continues to be a highly selective process. Staff in sectors such as retail (excluding most online businesses, of course) are yet to get their full paychecks back – and sources say it’s unlikely they will see it until 2021 comes around. Workforces in aviation and hospitality, real estate and construction, advertising and media too are still some distance away from the comfort of being able to withdraw their full entitlements.
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Multiple industry sources say those businesses that are reinstating full salaries would have completed the extremely difficult task of cutting down their staff size. “In most sectors, business activity is far from reaching pre-COVID-19 levels,” said the HR manager at a leading retail group. “So, bringing down the employee numbers is the only way to manage costs – and most of the cuts will continue to happen in the mid- and senior management levels.
“Salary reinstatements will not happen until businesses feel they have turned the corner – the question is when will that corner be reached?”
Not done yet
Most would have thought that whatever pruning of workforces should already have taken place since March, when organisations had their first look at the devastation the COVID-19 brought about. And use the summer months to further cut back and in some way brings costs down.
That’s not the way it’s turning out to be, and for key sectors, some difficult decisions lie ahead of them. “We expect to see more changes in the banking sector as we move from traditional banking towards the digital age,” said Vijay Gandhi, Regional Director at Korn Ferry Digital, the consultancy. This has resulted in a “need for talent that is AI-driven to improve the overall processes from risk, credit, operations and compliance roles and the impact of reduced branches.
“Most companies affected with the crisis have “de-layered” the management a few months ago to start the next quarter with a low cost base.”
Organisations are beginning to reverse the salary cuts – we are seeing it happen in phases between October and January depending on the industry
A gradual return
For a majority of UAE businesses and their employees, a full salary reinstatement will still take months. “We expect to see this trend continuing throughout the remainder of this year,” said Luke Tapp, Partner – Employment at the law firm Pinsent Masons Middle East. “It does ultimately depend on the sector, as some are more robust in terms of the market and economic opportunities, as well as the ability to deliver services and goods in a remote way.
“For example, the professional services (accounting, law, etc.) and financial services seem to be responding faster and in a more positive way.”
In some sectors, the challenge now is encouraging good talent to consider new opportunities because those individuals are not willing to take a risk on a new role while there remains volatility within the global and regional economy
Most vulnerable
Middle level managers cutting across industries will spend the next few weeks in quite a bit of distress. Employers started out with lowering their headcounts at the lower end in the initial weeks of the pandemic.
But it’s now mid- and senior-level that are likely to be most threatened. Some have responded by taking voluntary pay cuts rather than end up on the chopping block.
Healthcare returns to some normalcy
The sector that is out there battling the pandemic went through its own share of critical times. Healthcare also saw salary and compensation cuts across the board during the peak months of the pandemic – but once hospitals and clinics started to operate at full capacity, salaries are being handed out in full.
But things are not running smooth as yet. “There are some hospital chains where many doctors are having trouble on salary payments,” said the CEO of a mid-level clinic network. “Delays of a month or two are common – but thankfully, the salaries when they do come are in full.”
Retail is worst hit
Leading retail groups say it will be some time before their employers can say the same. Many worry that the “30% cut” will become a permanent state. Categories such as jewellery, apparel and automotive have gone through extensive workforce reductions – and more await.
“When few are willing to buy, where’s the justification to retain the same number of stores?” queries the CEO of one retail group. “And when there are fewer stores, there definitely won’t be the need for the same number of staff. The big decisions in retail are still pending.”
For some, it’s all good
New hiring is happening, but even then with definite changes. According to Gandhi, there has been a pick up in recruitments since the start of the month, again restricted to a handful of sectors. “But [these are] at a cost base which is 15-20 per cent lower on fixed pay for similar roles but offering higher commission on lower thresholds for sales and service jobs in particular.”
“Reducing the benefits for new hires is a common theme where benefits like children’s education and air tickets are being reviewed. There is a shift to ‘total reward’ where base pay management is centered around promotions [but] limited to a small high-potential employee pool.
“This is a big shift from the past where the increases were sprayed across the workforce. As every industry went through a disruption few months ago, we have seen more programmes on re-skilling to help create opportunities for employees to move roles within their organisation.”
Still a long way off
So, 100 per cent salaries will continue to be on a case-by-case basis. And even within the same industry, there could be businesses that are back to full salary and others that aren’t. The 30 per cent cut is not going to go away…
“The law that was implemented earlier this year that related to salary and cost saving measures was UAE Ministerial Resolution 279 of 2020,” said Tapp. “This law permitted companies in the onshore, mainland area to implement temporary or permanent salary reductions – with the consent of their employees.
“The law primarily applied to onshore companies, but we know that some of the free zones have implemented similar regulations that are applicable within their jurisdictions.”
A 30 per cent cut is all part of that ‘New Normal’…