As an employer, you have every incentive to try and avoid large-scale layoffs. After all, your team represents your company’s most valuable asset, and significant costs have gone into the recruitment, training, and support of each and every team member. If there is a way to avoid having to slash and burn the workforce, there’s a very good chance that you are going to want to investigate every option. 

When your business is strapped for cash, leaders need to start thinking “outside of the box” in order to avoid layoffs. One option is for cash-strapped employers to institute temporary pay reductions for employees. While this isn’t an ideal option for anyone, it can sometimes either delay or eliminate the need for mass layoffs. According to the National Federation of Independent Business, there are six key points to remember when considering a cut in wages or hours for your employees:

  • You can reduce the wage or hours of a nonexempt hourly employee, so long as it remains above minimum wage.)
  • You can reduce wages or hours for a salaried employee, so long as the weekly pay is above $455.
  • Employers are legally required to give as much notice as possible under the Reasonable Advance Notice provision. 
  • If your employees are unionized, all negotiations regarding reductions of pay or hours must take place with the union first, unless the collective bargaining agreement that governs the employee/union relationship gives the employer the right to make such a reduction unilaterally. 
  • If you’re implementing a wage cut, try and make sure it is applied across all roles, levels, and functions at the company. Selective cuts, unless carefully documented and clarified, can open the employer up to potential legal action. 
  • Employees who are faced with reduced pay or hours may be eligible for unemployment compensation. 

Still, employers must be extremely careful when adjusting employee compensation. According to Small Business Chronicle, “salary changes aren’t always legal. Whether a company can legally cut a worker’s compensation depends on his status under federal law and any private agreement between the employee and his employer.”

The good news is that this is temporary and there is an overall consensus when using a temporary partial pay reduction is that things will eventually get back to normal.

Always consult professionals and lawyers that understand the items and laws surrounding the subjects you are interested in learning more about. The potential legal exposure faced by employers when navigating reductions in force can be immense. 

 

Citations

“Pay Cut Laws: Cutting Hour at Work without causing a Lawsuit”
NFIB (National Federation of Independent Business, Inc), September 16, 2017
https://www.nfib.com/content/legal-compliance/staffing/how-to-cut-hours-without-causing-a-lawsuit-50738/

Russell Huebsch, “Can You Legally Change an Employee’s Compensation?”
Small Business Chronicle
https://smallbusiness.chron.com/can-legally-change-employees-compensation-36888.html

Lisa Guerin, J.D., “Furloughs, Hour Cuts, and Pay Cuts: Your Rights
NOLO, https://www.nolo.com/legal-encyclopedia/furloughs-hour-cuts-pay-cuts-33484.html