Specialist

Payroll and the Workplace in 2021With 2020 at an end, the hope for most business owners is that 2021 will be less turbulent than its predecessor. But with Ireland’s Level 5 lockdown extended the transition back to ‘business as usual’ has already proven more challenging than many organisations had previously envisioned.

All the indications are that coronavirus restrictions are going to remain in place for some time, and reopening is likely to be gradual. 2021 will not be a normal year, but with vaccines being rolled out and a worst-case Brexit scenario avoided, it will surely be better than 2020.

While the economics of 2020 was dominated by the path of the virus, the economy of 2021 will be determined by the logistical efficiency of the vaccine rollout. 2021 will likely be the year when the world transitions to the new normal. Although we don’t know when the balance will shift, one thing we can be certain of is that the coming months will further disrupt payroll and the workplace.

In this article we will examine the and causes consequences of workplace and payroll disruption in 2021.

Changing Wage Structures

The first and most obvious change regards employee salaries. The COVID-19 crisis provoked wildly divergent reactions, with some businesses taking off and others suffering badly. Nowhere is this more apparent than in employee wages. A recent IBEC survey showed that 49% of firms forecasted pay increases in 2021 while an equal number planned pay freezes.

2020 also saw a dramatic fall in monetary perks, particularly in services which have a communal element. According to the Robert Walters annual 2021 Ireland Salary Survey just 10% of white-collar Irish professionals expected to receive their January bonus. And 76% of those bonuses will be determined by the company’s profit/revenue. With delays in the rollout of the vaccine and Ireland’s Level 5 lockdown lasting until March at the earliest, the expectation is that bonuses will take a occupy trajectory in 2021.

Changing Working Norms

Many organisations are already trying to offset the lack of fiscal rewards by giving workers increased autonomy, flexible-hours, secondment opportunities, and wellbeing initiatives.

Prior to the pandemic, remote working was less common and far from the predominant method of working in most industries. For many employers there had been a reluctance to fully embrace flexible ways of working, due to a combination of technical challenges and a pre-conceived negative view of such arrangements.

Attitudes towards flexible working hours have shifted quite dramatically during the pandemic. Where such arrangements have been successful, flexible working may well become the new norm.

Unfortunately legislation has not kept pace with changes in the workplace. New schemes and incentives to encourage flexible working will be needed to solidify the trend. With new government plans already mooted and the State being obliged to introduce a law on flexible working arrangements by August 2022 in order to comply with an EU directive on work-life balance, changes in this arena appear to be a foregone conclusion.

Similarly further legislation will be required to deal with the tax difficulties and employment law obligations surrounding “digital nomads”. Many organisations are concerned about creating income tax difficulties and incurring additional employment law obligations, as a consequence of this phenomenon.

Greater Outsourcing

A recent IBEC survey highlights that almost two-thirds of CEO’s (65%) agreed that Covid has meant a permanent change in their business models. For many this will involve embracing contractors over employees. The prospect of greater flexibility in scaling up and down their workforce on demand, without being subject to employment law, a potentially cheaper way of hiring and no need to pay employer’s taxes and liabilities PRSI are too tempting for most organisations. And those employees who remain may work in a non-traditional format.

Redundancies and Wage Cuts

Predictions surrounding the economic outlook for Ireland in 2021 vary wildly and will continue to do so until the pandemic ends. But what is clear is that the impact of the lockdowns on businesses in Ireland has been dramatic and the most immediate challenge facing many businesses is how to continue to operate in a vastly altered business landscape.

Inevitably this will lead to some job losses. Temporary business closures, loss of trade, and general economic malaise are likely to lead to wage cuts, lay-offs, short-time hours and recruitment freezes as companies strive to reduce spending and ride out tough trading conditions.

There is evidence though that a strong recovery is possible however. Irish households amassed €11 billion in savings during the first 9 months of 2020 and the Irish economy rebounded sharply - growing by a near record 11.1 per cent - in the third quarter of 2020. So we could see a big post-pandemic bounce back in spending and employment if the conditions are right.

Income Tax Reform

With the Irish Government racking up a €20bn deficit during the pandemic so far, and the average cost of State spending on the coronavirus response at about €2 billion a month, the prospect of tax reform looms large. A feature of government deficits worldwide is their ability to drive tax reform.

Following the financial crisis of 2008, Ireland witnessed tax and healthcare reform through the introduction of the Universal Social Charge.  This charge was established to help shore up a large deficit in public finances. Similarly, the need to accelerate the revenue collection process led to the modernisation of Ireland’s PAYE system and the introduction of real time reporting (RTT) in the aftermath of the 2008 financial crisis.

by Morgan Campbell Paycheck Plus.