COMP DOCTOR – MAY 2020

Question: My colleagues and I, like the 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 they 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?

CompDoctor^™: Work from home. Social distancing. At-risk populations. Wash your hands. Disinfect everything, COVID-19 changed our world, seemingly overnight. Let us address the issues that compensation professionals need to know to support career and organizational well-being.

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

Can Hazard Pay Help?

Frontline workers are exposed to all the situations that we are told to try to avoid during the pandemic. They simply cannot self-isolate. Nobody is saying they should stay at home, and most of them would not do so even if they could. Plus, we need frontline government employees now more
than ever.

At the same time, some agencies and departments are experiencing sickouts and recording high numbers of no-shows because employees are concerned about their own safety and health. This potentially puts members of the public at even greater risk.

At Gallagher, our clients have asked if providing additional compensation to frontline workers can help. The best answer we can give is possibly.

WorldatWork, the professional compensation and benefits association, on March 27, 2020, published survey findings showing that among 267 organizations, 65 percent were not then planning on offering “hazard pay (incentives and spot bonuses) for employees who are required to work on-site during the pandemic.” Perks such as free meals and day care were generally seen as sufficient to keep workers on the job.

The survey also revealed that

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

To the degree that paying people more to assume additional job-related health risks can keep them on the job, how does an employer structure compensation so it is fair and effective? And can hazard pay be instituted in a way that ensures employees will continue coming into work?

Examples of Incentives for Grocery Store Employees

The Wall Street Journal reported on March 28, 2020, that Walmart, one of the world’s largest employers, planned to pay bonuses to its roughly 1.5 million employees in the United States. The retailer announced bonuses of $300 to full-time, hourly workers and $150 to part-timers. Kroger put forward the same plan as Walmart.

Earlier, as summarized in the March 20, 2020, Sacramento Bee, Target, Whole Foods and Texas-based chain H-E-B boosted store employees’ pay by $2 per hour. Save-Mart said it would pay its unionized workers $2.50 more per hour and bump overtime pay. In addition, the California- and Nevada-based chain planned to provide hourly employees one-time rewards averaging $500 to ensure they continued stocking shelves and providing the services the public needed.

How the Federal Government Handles Hazard Pay

Under long-standing policy, the federal government awards hazard pay to members of the military who deploy in conflict zones or take on dangerous assignments. As explained by 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, law enforcement personnel and firefighters do not receive hazard pay because the assumption of risk has already been factored into their base pay rates.

Deciding Whether to Provide Hazard Pay

So, should state and local governments start providing hazard pay to frontline workers? Our answer is a qualified yes.

Before deciding if your agency or department should make hazard pay available, ask the following questions.

• Does any state or local law prohibit extra pay? Historically, payments of incentives or bonuses by public agencies are not prohibited. However, to avoid issues or challenges related to “gifts of public funds,” public agencies that intend to offer bonuses or other forms of incentive compensation are generally advised to make certain that the terms and conditions for earning and disbursing the extra pay are spelled out in advance of when employees receive the money.
• What jobs are directly affected? That is, can you define or identify which jobs will be covered by any incentive you want to provide? You will want to ensure that you are not excluding groups that may be similarly affected simply because they may not be as visible to the public as other groups.
• Will employees in other jobs have to pick up work not being done by those who are on the front lines because their frontline responsibilities leave them unable to complete all their usual tasks? If so, should those who step in to backfill for frontline workers receive some form of additional pay for working out of class?
• Can you afford it? This may not seem like the right question to ask while the pandemic is still peaking, but it needs to be asked.
• How long will the extra pay be available?
• Do you think the additional pay will overcome employees’ fear of the virus (or other risks)?

We cannot answer these questions for you.

Deciding How Much Hazard Pay to Provide

If you decide to pay extra, you must determine how to calculate that pay. Here are the options we suggest for setting the hazard pay rate.

• 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 it is paid at a rate of at least 7 percent over base.
• Pay it out as a monthly bonus based on the above calculations.

Regardless of which option you choose, do not pay the bonus as part of an employee’s normal paycheck. Making hazard pay look like a component of regular pay will make ending the award of hazard pay after the pandemic subsides more difficult.

Formulating a Hazard Pay Policy

The Fair Labor Standards Act does not address hazard pay except to require that it be included as part of an employee’s regular rate of pay when computing overtime pay. So, each agency and department must create its own hazard pay policy. Here is that we advise.

• Develop an objective test or measure for when the extra pay will be eliminated. Base this on state infection rates, decreased infection rates or some other verifiable measure.
• Clearly communicate the terms for earning hazard pay. In messages to employees, include the intent, expected behaviors and how the extra money will be paid and for what duration. Communicate these details before the plan goes into effect.
• Encourage employees to participate but avoid punishing employees for not taking assignments that will earn them extra pay.

In all events, provide frontline employees with all the personal protective equipment (e.g., masks, shields, nitrile gloves, cleaning supplies, hand sanitizer and disinfecting opportunities) you can to mitigate the hazard of coronavirus infection.

We do not have all the answers. No one does. With proper discussion and safety precautions, however, you can help to slow the spread of the novel coronavirus and lessen the impact of COVID-19 in your community while continuing to provide the services that public servants are called to deliver.