Living with Salary Cuts

The news coming from the UK, Europe and the US where people are being told to prepare for a ‘tough winter’, is full of localised lockdowns, rising positive numbers and cautious consumer behaviour.

This caution and negativity will naturally affect businesses in the UAE. Whilst the UAE Government is working tirelessly to stabilise the economy, a huge fallout of the global pandemic has hit businesses where it hurts. This has resulted in companies having no choice but to pass the pain onto their workforce through salary cuts.

The UAE press has reported that this will continue into 2021, so how is it affecting the workforce and their families?


Every day we come across messages from contacts who are struggling to cope financially and comprehend their future with ongoing salary cuts. Just last month, many employees who were expecting a return to full pay received notice that their cuts were due to be extended until the end of the year, resulting in the real prospect of some families existing on 50% pay for 9 months.

The knock on effect of these salary cuts is far reaching, unquestionably the uncertainty and stress of managing on such a reduced package will affect a person’s mental health and positivity. See here for how residents have been remaining positive in the face of salary cuts in the UAE.

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Practically speaking though it can influence every part of daily living; from food bills, to rent, to children’s schooling we spoke to one contact about her husband’s salary cut and how they as a family have been affected:

“My husband works in the hospitality industry and therefore was given a salary cut, I work too but my commission based salary has also been impacted by the global pandemic – so we had to take control early on”

By choosing more affordable accommodation and moving their children from a ‘premium’ school to embracing a cheaper learning institution, our contact and her husband have been able to offset the drop in salary without having to eat into precious savings. “I’m not going to say that it has been easy, we are fortunate that our children are old enough and understand the situation and have embraced the changes in a mature way.  We were able to do this because we took action as soon as the cuts were announced and really stripped back our lifestyle straight away – it helps you to realise what is important in life”.

Loosing control

Other families have not been as successful though one contact told us that she “feels like we’re drowning, but a move back to my home country would be impossible at the moment as there are no opportunities there either”.

A picture containing food, fruit, coffee Description automatically generatedAnother cost-saving option taken up by a contact includes home schooling from a UK company. For just AED 25k per year, they receive a full online study package, including face to face tuition with top teachers. The school week has changed to Monday-Friday and the time-zone is affecting the start of the school day, however the annual saving for 2 teenage children amounts to well over AED 100,000. For this family which is currently living on 50% of their previous salary, it is a no-brainer.


The impacts on business

For employers, there are other knock-on effects of a sustained lower salary. One of these includes losing staff to other businesses which are paying full salaries. A further dilemma to consider – does one hire a newcomer on a 50% lower salary to equal existing employees, or pay them the full amount to attract them to join? These are real life examples our clients are asking our advice on.

A picture containing nature, sunset, standing, ocean Description automatically generatedFurthermore, some of our candidates are not only working on a reduced salary, but their team are slowly but surely resigning one by one, leaving the remaining employees under huge pressure to hit deadlines. Morale is very low, working longer hours for less pay, not seeing family. The question is being raised – ‘is it all worth it any more – perhaps it’s time to go home?’

We do not have a simple solution to these problems, however speaking as recruiters, we are seeing many candidates who are seeking new jobs due to the inability to survive on a reduced salary. If companies continue to push employees to their limits, you can expect to lose a vast proportion of your workforce. Therefore our only advice is to think carefully before extending a salary cut and try to boost staff morale.

 

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