One day, you get to work, jubilant and refreshed after an evening sleeping on a swanky, new, king-sized, four-post bed – a definite improvement from your dilapidated, hard and noisy twin that had you tossing and turning the entire night. But, as soon as you walk through the office door, your great mood quickly turns upside down after your boss informs you that you are taking a pay cut next month.
Sadly, your dreams of a full-night’s sleep is shattered as you’ll need to return that bed; and a great day has suddenly morphed into a bad one – and it’s only 9:15!
Having your employer reduce your salary is far from pleasant. It’s unfair, unjust and undignified. Yet, aside from grimacing, typing on your keyboard in a frantic manner and going home to drown your sorrows in a generic beverage – there isn’t a whole lot you can do about it.
In fact, the only thing you can do is know your rights and options as an employee when experiencing a salary reduction and employ measures to help you deal with it.
Here is everything you need to know!
What Is a Pay Cut?
A pay cut is defined as a reduction in an employee’s salary, mainly when there are layoffs, corporate restructuring and cost-saving initiatives. It could be permanent or temporary, and it might result in a decrease in day-to-day responsibilities. Also, it could affect a worker’s benefits, bonuses and raises.
How Should You Be Notification About Pay Decrease?
Every jurisdiction maintains its own set of labour laws, including the process of notifying workers about any change in the structure of your remuneration. Some places require your employer to give one day’s notice, while other areas around the world mandate that companies extend at least one week. It is vital to check with your local labour laws and determine if you were given an appropriate amount of time at work.
When Can Employers Reduce Your Pay?
In a perfect world, employees will never see their paycheques get dinged. Unfortunately, this is not a utopia, and the realities of the marketplace can impact the most successful business. That said, there are many times that a company is within its rights to lower staff pay, including:
Acme International is having cash flow problems
Vandelay Industries is going through corporate restructuring
an employee was demoted – not promoted – so a salary deduction followed
an across-the-board pay cut, including management, to keep the doors open.
Indeed, everyone would rather accept lower pay than losing their jobs. The only time this might seem unreasonable is if everyone experiences a reduction in their salary, but the head honchos do not. In that case, you might want to seek other employment.
How Much Can Your Salary Fall?
Again, this does vary by jurisdictions. However, generally speaking, your pay cannot be lower than the minimum wage. So, if you’re earning $18 (£14) per hour and the minimum wage is $14 (£10), then your hourly wage is not permitted to fall below $14 (£10).
Can Your Pay Be Lowered Due to Discrimination?
By law, private enterprises are required to reduce salaries in an equitable manner. In other words, they are prohibited from targeting workers based on their race, age, sexual orientation or religion. These are all aspects that are a protected class under discrimination statutes.
Moreover, employers are barred from slashing your wage or salary that might conflict with public policy. As an example, an employee cannot be terminated, see their hours cut or their pay reduced for jury duty, whistle-blowing, serving in the National Guard or voting.
When Is It Illegal to Cut Your Pay?
So, the key question you’re probably asking is this: When is it illegal to cut your pay? Here are several things you need to know about wrongful termination.
Your employer retaliated after you filed a complaint about sexual harassment or bullying.
A contract explicitly states the pay rate for your job; the employer will need to renegotiate your contact if he or she is desperate to reduce your earnings.
The company is doing so on a discriminatory basis; South Asians and people younger than 35 are getting a salary reduction.
An exempt employee – who must earn a salary and is not entitled to overtime pay – is penalised, but then the company loses its salary exemption, leaving the exempt employee eligible for a myriad of other benefits.
Should you find that your boss is not keeping up with modern-day labour laws and you believe you have been wronged, then it would only be appropriate to file a complaint with your local labour ministry or department. You might also seek legal assistance and sue the firm for lost wages.
Can You Ask Questions?
You should never hesitate to walk into the manager or owner’s office and ask plenty of questions:
Is this temporary or permanent?
Will your workload decrease or remain the same?
What are the company’s plans on turning things around?
Could there be retroactive reimbursement?
It is these questions that can help you out a lot and show the firm that you are dedicated to your position and the employer.
How Do You Handle a Pay Cut?
Now that you have accepted an income reduction, the next step is finding ways of handling it. Indeed, no one will argue that seeing a 23% drop in wages is difficult, especially if you’re living paycheque to paycheque, suffering from a lot of debt or having an addiction to morning lattes. It can be stressful knowing that you have become accustomed to higher earnings, but now those earnings are being removed.
Believe it or not, even a 23% dip in pay is doable, as long as you employ the appropriate measures.
Here are five tips for handling a pay cut:
1. Look at Your Budget
Firstly, you should be commended for having a budget. Do you know how many of your fellow men and women do not have such an important tool in their lives? Secondly, it’s great that you have it, but what good is it if you’re maximising its potential? Simply put, you need to routinely reassess your budget, which is particularly true when you’re the victim of a pay cut.
So, once you receive a letter from human resources, be sure to examine your budget and implement the following.
Institute a series of budget cuts (morning coffee trips, unused gym memberships, smartphone plans).
Find ways to earn more money (freelance, part-time job, etc.).
Determine if you can still save and invest like you normally would.
Calculate how much you need to make to keep up with the essentials (rent/mortgage, utilities, transportation, food and saving).
2. Never Miss Bill Payments
One of the quickest ways to get into trouble is to miss your bill payments. Unless you have negotiated a different payment plan that eliminates interest, then you shouldn’t decide to skip your water, Internet, or credit card bill this month. Instead, you need to maintain your payment schedule. Otherwise, late fees, interest and other penalties will accrue, leaving you in a worse situation.
3. Don’t Go into Debt
No matter how many times you convince yourself that things will get better and you’ll earn more money than ever before in the future, you should never take on more debt than you have to. Yes, life can be tough, and it certainly is going to be a bit harder with lower income but going into debt won’t work.
With credit card interest the way it is, piling onto your Visa or MasterCard or even line of credit will cripple you for years to come.
4. Keep Saving
Like paying the rent or putting groceries on the table, saving should remain a top priority. Whether it is for a rainy day or your retirement, ensuring your automatic savings plan continues.
It is essential to remember that if you’re scraping by, then you do have the option of decreasing your monthly savings obligations. Rather than socking away $1,000 a month, you can decrease it to $500. The main objective is to save and invest without hiccups, even if that means one less trip to Starbucks.
5. Reassess Your Long and Short-Term Goals
Everyone has different financial goals. One person may want to save enough money so they can retire from the workforce and just stay home and sleep all day. Another individual may want to burn through any income he or she receives and work until they are old and grey. Priorities, people!
Now that your financial picture looks slightly different with less income, it would be a prudent step to reassess your financial aims – long-term and short-term. Indeed, your short-term goal right now is survival, but it won’t last forever, so maybe it’s time to be more ambitious with your future!
In this global economy, businesses are choosing to implement across-the-board pay cuts rather than layoffs for dozens or 100s of workers. This is much more preferable – for both the employee and the employer. For the company, it saves on having to hire and retrain when business is booming again. For the worker, it means steady employment, a paycheque and no need to job search and participate in interviews.
That said, a salary reduction is not ideal, but it happens. It is up to you to make the best of a bad situation.
Have you ever had a pay cut? How did you deal with it? Let us know your experience in the comments section below.