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COMP DOCTOR™:COVID-19 and the Public Sector: Compensation Implications

COMP DOCTOR™:COVID-19 and the Public Sector: Compensation Implications

Question:  My colleagues and I, like leaders of most municipal and state governments, are hit hard from the impact of COVID-19 working from home situations, working out of class, OT, and pay continuation. These measures may become long term and have shaken standard compensation policies. Do you have any advice on both short- and long-term impacts and what we should do to protect system integrity?   

Comp Doctor: Work from home, social distancing, at-risk population, wash your hands, disinfect everything—COVID-19 has changed our world seemingly overnight. Let us address the issues that compensation professionals need to know to support career and organizational wellbeing.

Many government employees serve as “front line” workers. In other words, they interact with the public as part of their jobs. They cannot “work from home,” nor can they practice CDC-recommended social distancing. EMT, firefighters, police officers, nurses, home health aides, social workers, bus drivers, license clerks, and others fall in this group.

Can “hazard pay” help?

These workers are exposed to all the situations that we try to avoid, but they can’t. Nobody is saying they should stay at home, nor would most of them do so if they could. We need them now more than ever. 

At the same time, some governments are experiencing “sick outs” and “no shows” because employees are concerned about their own safety and health. This potentially places an even higher level of risk on the public.

At Gallagher, our clients have asked if compensation can help. Yes and no. To the degree it can, how do we structure compensation so it is fair and effective? Can we institute hazard pay to ensure employees to come to work?

Incentives for grocery employees
Based on news reports, Walmart, one of the largest employers in the country, says it will pay bonuses to its roughly 1.5 million employees in the US, (Wall Street Journal, March 28, 2020.). They will pay staff bonuses of $300 to full-time, hourly workers and $150 for part-timers, presumably until the virus subsides or overall situations change. Kroger will offer the same program as Walmart. Target, Whole Foods and Texas-based chain H-E-B is boosting pay by $2 per hour. Save-Mart says it will pay UFCW workers $2.50 more per hour and bump overtime pay to $3.50 per hour. In addition, the chain will provide one-time rewards for hourly employees averaging $500 so that they can continue to stock shelves and provide the services the public needs, (Sacramento Bee, March 20, 2020.) 

The federal government has maintained a long-standing policy of paying hazard pay to service men and women who are deployed in dangerous assignments. According to Federal Week,         

  • “The amount of hazardous duty pay is determined by multiplying the percentage rate authorized for the exposure by the employee's hourly rate of pay. That amount is then multiplied by the number of hazardous duty hours to be paid. Hazardous duty pay may not be more than 25 percent of the employee's rate of basic pay.”

Usually, police officers and firefighters do not receive hazard pay because it has already been factored into their base pay rate.

WorldatWork, the professional compensation and benefits association, in a survey published on March 27, 2020, found that:

Hazard pay (incentives and spot bonuses) for employees who are required to work on-site during the pandemic has been a point of particular interest for organizations across the globe. WorldatWork’s “COVID-19 Quick Polls” survey of 267 organizations found Tuesday that 65% are not planning on offering extra pay, but instead will provide perks such as meals and daycare options, while 9% have nothing planned.

26% of surveyed employers said they are planning to provide hazard pay. Of those, 9% will offer a cash incentive that is a flat dollar amount, 8% will give cash incentives tied to hours and shifts worked and 9% will give cash incentives that are based on a different formula, such as a percentage of salary.

So, should governments start providing hazard pay to front-line workers?  And if so, how much? Our answer is a qualified yes.

Questions concerning hazard pay
First, before deciding if you should add hazard pay, ask the following questions:

  1. Is there any restriction in state or local law that prohibits extra pay?  Historically, payment of incentives or bonuses by public agencies are NOT prohibited. However, to avoid issues or challenges related to “gifts of public funds,” public agencies generally are advised to make certain that if they are going to offer bonuses or other forms of incentive compensation, that the terms and conditions of such bonuses and incentives are spelled out in advance. This means that if you want to use bonuses or other incentives, you need to specify the terms and conditions prior to the time period that will become the basis for the award. 
  2. What jobs are directly affected? Can you define or identify which jobs will be covered by any incentive that you may want to provide. You will want to ensure that you are not excluding one group that may be similarly affected simply because they may not be as visible to the public as another group.
  3. Are there employees in any other jobs who might have to pick up the work of those who are on the front line that the front-line workers cannot do because of the increased demand for their services?  Should those who step in receive some form of additional pay for working out of class?
  4. Can you afford it? This may not be the right question during an international pandemic, but it needs to be asked.
  5. How long will the extra pay last?
  6. Do you think the additional pay will overcome employees’ fear of the virus?

We can’t answer these question for you; but if you decide to pay extra, here is what we suggest:

  1. Pay the bonus as an hourly rate enhancement. The average appears to be about $2.00 per hour, but there are no standard rules. We do know from our own experience that bonus pay is impactful if paid at least 7% or more over base.
  2. Pay it out as a monthly bonus, based on the above calculations. Do not pay it in employees’ normal pay check, because it will be harder to remove after the pandemic subsides.
  3. The Fair Labor Standards Act (FLSA) does not address the subject of hazard pay, except to require that it be included as part of an employee's regular rate of pay in computing the employee's overtime pay.
  4. Develop an objective test or measure of when the extra pay will be eliminated. Base this on state infection rates, or decreased infection rates or some other verifiable measure.
  5. Make sure that you clearly communicate terms for incentive pay, to include the intent, expected behaviors, how it will be paid and for what duration. Communicate prior to the plan going into effect.
  6. Encourage employees to participate, but avoid punishing employees for not cooperating.
  7. Provide employees with whatever personal protective equipment you can to mitigate the hazard; i.e., masks, shields, nitrile gloves, cleaning supplies, hand sanitizers and disinfecting opportunities.

We don’t have all the answers; no one does. However, with proper discussion and safety precautions, you can help to slow the impact of COVID-19 and continue to provide the services that public service is called to deliver.

Please call on us at Gallagher if we can help to answer any questions to help you face the future with confidence. Visit GallagherHRCC.com or call 1-800-822-8481.

Thank you for all you do. We know your team is on the front lines, and we are very grateful.

Be safe!

For more Public Sector content like this, visit www.GallagherHRCC.com. Please contact us to discuss your questions or concerns: Ronnie Charles, Managing Director and Practice Leader, Public Sector and Higher Education consulting, Gallagher: Ronnie_Charles@ajg.com, 1.651.234.0848.

©2020 Arthur J. Gallagher & Co.
 

Consulting and insurance brokerage services to be provided by Gallagher Benefit Services, Inc. and/or its affiliate Gallagher Benefit Services (Canada) Group Inc. Gallagher Benefit Services, Inc. is a licensed insurance agency that does business in California as “Gallagher Benefit Services of California Insurance Services” and in Massachusetts as “Gallagher Benefit Insurance Services.” Neither Arthur J. Gallagher & Co., nor its affiliates provide accounting, legal or tax advice.

 

 

Ronnie  Charles

 

 Mr. Charles is a Managing Director with the Gallagher Human Resources & Compensation Consulting practice leading the public sector and higher education consulting service line. 

With over 30 years of professional Human Resources experience Mr. Charles specializes in all facets of Strategic HR Operations to include Compensation and Benefits, Total Rewards, Talent Acquisition, Employee & Labor Relations, HRIS, Workforce Planning, and extensive experience in project management leading and implementing large scale change and HR transformation initiatives. 

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