Ask the BPHR Advisor: Are Pay Cuts Legal?

Ask the BPHR Advisor: Are Pay Cuts Legal? 600 399 Balance Point Team

BPHR’s Director Lisa Salcido, SPHR, SHRM-SCP provides answers to your pressing HR questions.

Question: Is it legal for an employer to reduce an employee’s pay? 

Answer: When employers experience economic difficulties, pay cuts can serve as an alternative to layoffs. Unless the employee’s pay is protected by a collective bargaining agreement, or otherwise contractually guaranteed, there are no federal laws restricting an employer’s right to temporarily or permanently cut an employee’s rate of pay.

“At-will” employment gives employers the discretion to lower pay, reduce hours, terminate or demote employees. Employers are permitted to reduce hourly and salary pay rates as long as the employee is informed in advance. I recommend providing the notice in writing at least one full pay period in advance.

There are some situations where reducing pay would be illegal. Cutting an employee’s pay without proper notice, retroactively reducing wages, or lowering the rate below the state’s minimum wage is not allowed. Pay cuts that are inequitable are unlawful. Be careful not to apply reductions in pay in a discriminatory manner by targeting groups by gender, age, race or any other protected class.

Never decrease a wage to punish a worker for engaging in legally protected activity. The law protects employees from retaliation in response to reporting unsafe working conditions, making a harassment complaint, or taking job protected leave.

Employees do not have to agree to work at a lower rate. If they do not accept the reduction in pay, they can resign and would likely be able to collect unemployment benefits.

Take a More Balanced Approach to HR with BPHR

When tricky issues arise, you’ll appreciate having a knowledgeable resource by your side. That’s what you get as a BPHR client. Schedule your free phone consultation today to learn how your organization can benefit from our services.

Have a question for Lisa? Email her directly.

DISCLAIMER: The material presented on this page is for informational purposes only and does not constitute legal advice or legal opinion. 

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