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    Senior Member Mal12345's Avatar
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    Default Question About Wage Freezes for Employees

    I watched an episode of "Undercover Boss" today. The COO of Roto-Rooter stated at the beginning of the show that a year ago his company had instated a wage and hiring freeze in order to protect employee jobs.

    How does a wage freeze help protect employee jobs?
    "Everyone has a plan till they get punched in the mouth." Mike Tyson
    “Culture?” says Paul McCartney. “This isn't culture. It's just a good laugh.”

  2. #2
    FigerPuppet
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    Assuming "wage" means all forms of employee compensation, a wage freeze is to no longer give employee raises. By pausing this practice you ensure that the payroll doesn't grow.
    Assuming the COO made a distinction between a wage (pay pr. unit) and a salary (fixed), a wage freeze can also mean that the company instates an upper limit on, for example, the number of hours of work that the company is willing to compensate each worker for. This could be done to target individuals abusing overtime pay. The effects of this is twofold: Payroll for waged employees is stabilized/decreased, and production is decreased, which - if it is a factory of some kind - lowers the costs from raw materials. Decreasing production can be healthy in case of low inventory turnover - basically adjusting the supply to the market demand.

    Both of the above have a positive effect on the company's cost of running its business, thus increasing the likelihood of it successfully improving its net income. If the net income doesn't improve to acceptable levels after the above measures, then it's probably time for layoffs or to file for bankruptcy. So to answer your question: By instating a wage freeze they are trying to survive a slowdown of business without having to fire any employees, thus protecting their jobs.

  3. #3
    Senior Member Mal12345's Avatar
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    Quote Originally Posted by SmileyMan View Post
    Assuming "wage" means all forms of employee compensation, a wage freeze is to no longer give employee raises. By pausing this practice you ensure that the payroll doesn't grow.
    Assuming the COO made a distinction between a wage (pay pr. unit) and a salary (fixed), a wage freeze can also mean that the company instates an upper limit on, for example, the number of hours of work that the company is willing to compensate each worker for. This could be done to target individuals abusing overtime pay. The effects of this is twofold: Payroll for waged employees is stabilized/decreased, and production is decreased, which - if it is a factory of some kind - lowers the costs from raw materials. Decreasing production can be healthy in case of low inventory turnover - basically adjusting the supply to the market demand.

    Both of the above have a positive effect on the company's cost of running its business, thus increasing the likelihood of it successfully improving its net income. If the net income doesn't improve to acceptable levels after the above measures, then it's probably time for layoffs or to file for bankruptcy. So to answer your question: By instating a wage freeze they are trying to survive a slowdown of business without having to fire any employees, thus protecting their jobs.
    Thanks for the clear explanation.
    "Everyone has a plan till they get punched in the mouth." Mike Tyson
    “Culture?” says Paul McCartney. “This isn't culture. It's just a good laugh.”

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