If you're reading this article, it's likely because you're having to make a lot of difficult, unpleasant decisions after learning some uncomfortable truths about your pre-COVID financial situation, so let's talk about how to announce necessary pay cuts, layoffs, and price increases professionally and what steps to take to ensure you do so correctly.
The pandemic has made evident existing imbalances in compensation and pricing that long went unnoticed.
Many salon owners are realizing that to survive the post-curve, pre-vaccine period they'll need to both raise prices and lower employee pay—while having to contend with an extended downturn and potential forced closures due to local outbreaks. They'll also have to find room in their already tapped budgets for PPE, scanning thermometers, and the cleaning supplies necessary to properly disinfect their facilities throughout the day.
Is it legal to reduce employee wages?
So long as the reason for the wage reduction doesn't constitute unlawful discrimination (a violation of the Civil Rights Act of 1964) or violate an existing contract that expressly prohibits wage reductions, it is legal to reduce employee pay, but there are some caveats.
For pay cuts to be legal, they must be announced in advance of any work being performed during that pay period. The earlier you communicate the effective date of the pay reduction, the better. Employees deserve the time to consider whether they can afford to continue to work for you. If they can't, they deserve the time to seek other employment. I recommend making announcements at least two weeks in advance.
How do I announce pay cuts?
The reason for the reduction will affect how you communicate it, but generally, it's best to have these conversations one-on-one, rather than in a group setting, as each employee deserves the privacy to process the information and ask questions.
Unless you're choosing to reduce the employee's wages due to poor performance, the conversation often won't be an easy one, but sticking to the facts that resulted in the pay cut can make it a more straightforward process. Take a "cause and affect" approach.
During the ongoing COVID-19 nightmare, I urge you to show compassion and empathy. As gut-wrenching as this will be for you, it will be exceptionally stressful for your professionals, who may react emotionally. However, when given a choice between pay cuts and layoffs, most employees facing the wealth of uncertainties we're all sharing will be grateful to stay employed.
What if my employees don't want to return to work because they make more on unemployment?
Unemployment currently functions the way it was designed to during the pandemic. It's replacing people's pre-COVID income to keep them spending money and giving them incentive to stay home. Unfortunately, that means that some of our professionals will earn more on unemployment than they would in the salon (particularly those who were considered low-wage employees prior to COVID-19). The PPP and EIDL programs are also working as intended by giving employers incentive to keep people employed.
It's great that the programs are working, it's just unfortunate that they're working in opposition to one another.
However, employees were never entitled to a pay increase, nor should they expect to keep it simply because the government is willing to send the checks. It's also important to note that, while this excess provides welcome relief for professionals who were barely making a livable wage previously, those who weren't in that situation are now bringing in much less income, even with the extra $600 per week, and those people are struggling to pay their bills. As employers, we should be doing our part to make those employees whole again, as best we can.
Unemployment funds deserve to go to people who are legitimately unemployed, not professionals who are fortunate enough to have a workplace to return to.
However, we all know how industry compensation works and as some states prepare to enter Stage/Phase/Step/DEFCON 1 of their reopening, we're beginning to see what the next two years will look like. Employees whose compensation relies to an appreciable degree on commission bonuses are unlikely to be able to match their pre-pandemic income, no matter how hard they work. It may be best to furlough these employees or let them go entirely, especially since you will likely have to reduce employee hours and/or your staff numbers due to social distancing requirements—just be aware that if you received a PPP loan, your forgiveness eligibility will be compromised.
Employees should also be reminded that the extra $600 per week payments will expire at the end of July, and there's no guarantee that Congress will extend it at all, let alone in an expedient way.
It is hard to square our responsibilities as citizens who want to ensure taxpayer-funded public programs aren't abused during a crisis with our responsibilities as employers to our employees to ensure their personal welfare while we also contend with our obligations to our businesses, but nobody said this would be easy for anyone.
I can only speak to my experience, but for all but a handful of my consulting clients (so far), many of these employees shouldn't have been on the salon's payroll to begin with, as the business wasn't busy enough to provide them with an adequate income prior to COVID-19. In these situations, layoffs would have been in the salon's best interest, with or without the pandemic.
How can I avoid laying people off?
There are alternatives to letting employees go entirely. You could furlough them, cut their hours, reduce all employee pay, and/or freeze hiring as employees leave voluntarily.
Without question, many of us will have to let go of a few employees, thanks to social distancing requirements that limit the amount of people permitted in our facilities simultaneously.
How do I decide who to lay off?
Start by establishing what the salon needs and identifying your key employees. From there, you can decide which objective metrics to use when evaluating each professional.
Objective metrics are solid numbers gleaned from your internal reports, like productivity, client retention rate, and sales.
Try to keep your focus on verifiable, performance-based data, not subjective qualities or personal affection. It can be difficult but try to strip the person from the metrics. You should be looking at positions and what each person brings to the salon, not their merits as individuals or the history you share. If you don't think you can do that, have someone else provide the information to you with the employee's identifying details blacked out.
If you're ever asked to explain your reasoning for laying off certain workers and not others (for instance, by an attorney representing an aggrieved ex-employee), you should be able to show your work by explaining which metrics you used and why. These metrics and any other factors you consider are referred to as your "selection criteria." Essentially, they form the guidelines you use to determine who stays and who goes.
Because we're living in a freakish Bizarro world right now, you may want to consider handing the decision over to your employees first with a voluntary separation (or voluntary reduction in force), allowing employees to volunteer to be laid off in exchange for termination incentives.
Whatever you choose to do, be sure to check your state laws and layoff protections first.
Layoffs aren't the same as terminations. Layoffs aren't even the same as layoffs during the coronavirus pandemic. Under normal circumstances, you'd be expected to stay professional, stuff your feelings, keep your composure, and cry it out in your car later, but don't do that now. It's not healthy and the stress of COVID-19 is probably already shaving years from our lives. You're allowed to be a human person through this. You don't have to hold it all together right now. Nobody does.
How should I announce price increases?
Typically, I don't believe it's necessary to inform a salon's entire client list of a price increase, as it gives them the impression that they're entitled to comment about or debate it. Salon owners dread making pricing adjustments specifically because a fraction of clients will complain that they should be "grandfathered in" as compensation for their loyalty, but our costs are increasing as our dollars depreciate in value, so we can't allow that loud minority to influence our business decisions. These clients act in their own best interests, not the salon's.
Price increases are a necessary part of doing business that customers seem to understand and accept from nearly every establishment they patronize…aside from ours.
Normally, I prefer for salon owners to make their new pricing clear in their marketing materials and websites in advance of the effective date and allow their customers to decide for themselves whether it's worth complaining about. Should they decide it is worth complaining about, employees should direct them to speak with the salon owner personally in a private meeting, so that customer will be forced to explain to that owner why they think they know what's best for a business they don't work at and aren't legally or financially obligated to.
While you certainly could take that approach, I wouldn't recommend it at this time. Clients will be expecting you to update them on the status of the salon before you reopen, so plan to include a brief notice of the price increase in your pre-opening communications. When I say "brief," I mean it. Don't fall into the trap of explaining yourself. Nobody is due a thorough explanation of your reasoning.
Only in this circumstance is it acceptable to express remorse for a price increase.
During times of economic strife, we all suffer. Clients who find they will no longer be able to afford to come to your salon may be genuinely saddened at this additional disruption to their normal lives. This sucks for everyone and it's okay to say as much, but math doesn't lie. If the math tells you that an immediate price increase will be necessary to keep the business operational, the decision is out of your control and has already been made for you. Don't add to your anguish by lamenting the inevitable.
"The pandemic has necessitated an update to our pricing tables. You can see our new prices here [LINK]. We sincerely thank you for your understanding and support during this stressful time."
Should problematic clients challenge your decision, keep to this response: "The price increases were unfortunately necessary and aren't open to debate, but let's come up with a new care regimen that will fit into your budget."
Often, retaining these clients is as simple as presenting alternatives. Those of us who were behind the chair during the recession know all too well what that means, but if you weren't, here's what that looks like:
Sculpting haircuts that maintain their shape for 6-8 weeks instead of 4-6.
Performing partial root retouches instead of full root retouches.
Customizing removable hair extensions instead of installing and maintaining traditional extensions.
You get the picture: faster, more affordable services delivered less frequently. If your menu doesn't currently have items like this on it, now would be the time to add them.
Will I lose clients after raising prices?
Absolutely. Everyone loses a small percentage of their clientele when they increase prices, but we're all going to be losing clients through this—with or without a price increase.
Don't feel pressured to maintain unsustainable pricing just to avoid upsetting some of the clients, especially since the alternative could result in the disappointment of every client and every employee when your salon ultimately closes for good.
As we're all learning to navigate our new normal, I urge everyone to remember that this won't last forever. There will be an "after." One day, COVID-19 will be a dark memory, but you can be one of the bright spots in it by going the extra mile for others, volunteering to help wherever you can, accepting help when it's offered, and rediscovering what it means to truly be part of a community. In doing so, you'll be caring for yourself, as well.
Showing kindness and patience is the least we can do. Sometimes it's all we can do. I hope each of you stays safe (and sane) as we each do our part to get through this.
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