We are going to dive into the residual effects of the pandemic. As with any disaster, the aftershock and cleanup become fundamentally important – COVID-19 being no exception. As we approach the one-year anniversary of our new world, employer obligations that have been pushed back into the future now come into effect. The future is here – so what does that mean? Cost. With employees at the epicenter of these expenses, what are the employer obligations?
Three Critical Costs for Organizations in 2021
Sector by sector, our economy is caught in the unpredictable throws of the Novel Coronavirus pandemic. Most organizations outside of the public service are confronted with the perfect storm that they are either now or will be exposed to in the coming months.
During this period employees are testing the good faith relationship with their employer and are becoming much more rights savvy.
Termination Costs
Depending on the province, temporary layoffs or in Ontario leaves of absence and subsequent temporary leaves of absence, will trigger either a recall to work or a permanent layoff. Even the recall to work if it is less than what an employee enjoyed could still precipitate a claim for constructive dismissal.
In unionized organizations, the recall rights will be significantly tested as well. At minimum the expiry of recall rights normally found in the loss of seniority provision of the collective agreement will occur this calendar year possibly as early as this month.
It should be noted that even though there are legal obligations, that should be costed to anticipate the worst-case scenario, employees who want to return to work are less likely to force the employer’s hand.
Vacation Pay
Vacation pay is held in trust for an employee and accrues subject to the policy of the organization. It is normally calculated as a percentage of the previous year’s earnings or vacation with pay (salary continuance). Both are dependent on service continuity.
The pandemic forced the shutdown of the economy in March, 2020. Many employees did not have the opportunity to use their 2019 vacations as a result and would be carried over into 2021. In the meantime, accruals in 2020 have been calculated and as well as now in 2021. The accruals should appear on the balance sheet of the company.
To eliminate this liability, employees will have to be either paid out or forced into vacations – who wants to be on vacation sitting at home?
The organization’s policy on vacation pay will be critically evaluated by employees.
A cautionary note: Don’t rely on a use them or lose them policy; an employer owns this entire liability
Turnover Costs
Since many organizations have shrunk or are shrinking because of the impact on their business, employees voluntarily departing should be applauded. After all the employer has saved the cost of termination. That may be true but accrued vacation pay above will have an immediate impact on cash flow. Unplanned terminations are always an Achille’s heel.
But what if the best employees are leaving or worse still employees who the employer is counting on to survive the ravages of the pandemic.
Either way, an employer is faced with potential recruitment and training costs. It might be an immediate obligation or a requirement as we find the economy recovering.
As organizations assemble their forecasts for the balance of this calendar year, it is recommended to calculate a best case/worst case for all of these mentioned costs.
Unfortunately, an employer will only get a true understanding of the impact of managing these costs in 2022!