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Is It Legal to Give an Employee a Pay Cut

by Peggy Emch
Employee pay cut

Reducing an employee’s pay is no minor thing. A pay cut can be anything from illegal, financially troubling, emotionally unsettling, to devastating. Before cutting an employee’s pay, employers should consider the effects. Sometimes the repercussions aren’t worth it.

Timesheets.com has a free pay raise/cut calculator you can use when the time comes.

When a Pay Cut Is Acceptable

In some situations, employees accept the change, like when everyone in the company or department is getting a pay cut for the benefit of the business. In other cases, employees welcome it, like when they want less responsibility. Sometimes, a pay cut is intended to get employees to quit. There may be better ways to go about this, but at least in this case the effects align with the intentions.

When a Pay Cut Really Cuts

Most of the time, employees don’t see a pay cut in the same light as their employers. Thoughts usually circle back to, “This isn’t fair” and, “Is this even legal”.

In a recession or any time a company struggles to survive, a pay is a valid strategy that keeps the business afloat. Loyal employees may be sympathetic and willing to hang on through a hard time– that is of course if upper management is also taking a pay cut. If the reason is to line the pockets of upper management, though, employees won’t take kindly to the company hardship.

Reasons employees don’t appreciate

  • Corrections to what might have been a poor choice in original salary
  • Complaints by other employees about one employee’s rate
  • The realization that the employee is overpaid for the location or job description
  • Cash flow problems, if upper management doesn’t also take a pay cut

Mortgage and other bills

When employees buy homes, lenders base their loans on their income. Employees also buy cars, sign up for classes, school, and all the other things that cost money. Most people budget themselves based on how much money they earn. If you cut their pay, they may face new monetary hardships.

Emotional effect of a pay cut

A pay cut speaks a thousand words and those words usually hurt. Unless your objective is to get an employee to quit, be aware that a pay cut may prompt a job hunt. Even if it’s not true, employees usually see the pay cut as a demotion or take it as a hint that they are not appreciated. In either case, they will leave at the first opportunity. If you really value the employee and want them to stay, you might be better off just swallowing those few extra bucks per week and instead tell the employee that you cannot offer a raise this year. While that’s never fun either, it’s not as hard a blow as a pay cut.

Most of the time it is legal to reduce an employee’s pay but there are some instances in which it isn’t.

  • Surprise – A surprise pay cut is illegal. Employers must pay employees the agreed-upon rate. If employers wish to change that rate, they can do so but first employees must agree to it. If they choose not to agree to it, they can discontinue service with the company. However, employers cannot tell employees that the paycheck they already worked was earned at a lesser rate of pay.
  • Retroactive – Employers also don’t have the right to tell employees that their pay rate is changing and that the rate is retroactive some number of days. The pay rate can only change for any time after informing the employee.
  • Retaliation – If an employee complains about sexual harassment or other inappropriate office behavior, the employer cannot lower her pay rate in retaliation. It is not the right way to deal with this situation and retaliation is against the law.
  • Discrimination – Pay rates cannot lower based on race or gender. For example, if the company is struggling, the employer cannot legally cut the rates of all female employees to improve cash flow.
  • Breach of Contract – When employers have a contract with employees, they have a duty to pay them a certain rate for a certain amount of time. Once this time period is up, the employer can notify the employee of the pay cut and renegotiate the contract.

Additionally, regarding employee classifications, hourly employees must always make at least minimum wage, even after a pay cut. Exempt employees’ rates of pay cannot fluctuate. In other words, you couldn’t ask your exempt employees to take a pay cut during the slow months. If you needed to do this, you would have to switch the employee from salary to hourly.

Also, under current Department of Labor rules, salaried employees must make at least $684 per week. If you reduce an employee’s wages, they may fall under the required threshold and you would have to change them to “hourly” status. Before you reduce their wages, ensure that you think through all the possibilities and calculate accordingly. If you aren’t compliant with the law, you may face penalties.

Need to track your hourly and salaried employees’ time? Try Timesheets.com! It’s an easy way to track time for payroll and billing.

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Suza May 3, 2018 - 12:09 pm

I was injured wile on duty, company increase hour and want to cut my pay, but am not incompetent,nor misconduct,am productive

Itumeleng March 3, 2019 - 11:27 pm

This page is fraud, not in south africa there are steps to be followed before something can be legal here in mzansi, employers can not wake up tomorrow and say he/she wants to implement pay cut to employees, give us sections in labour law, this page is misleading employees not to stand for their rights.

timesheets_blog March 12, 2019 - 5:05 pm

Itemeleng, This post was written in the US, primarily for US customers. Laws in your country may be different.

Nick February 19, 2020 - 2:53 am

Can an Employer change commissions in the middle of the month? We started the month with one pay plan and on February 14 pay plans were changed effective immediately.

Lindsay Sommers February 20, 2020 - 3:37 pm

It looks as though the Department of Labor doesn’t have regulations in regards to the change of commissions; however, usually employers present employees with a contract letting them know about commission changes. I would suggest speaking with the Wage-Hour division for help: 1-866-487-924

Maria Alvarez May 7, 2020 - 11:22 pm

I work for a group of Doctors in one office. I perform cardiac ultrasounds in their office. They approached me today to take a paycut, due to them not getting paid enough by HMOs and that I make too much money. I have been working for them for 13 years. I feel like Im getting put in a hardship that is not related to my work I do for them. No complaints on the work I perform. Is this legal for them to do?

Lindsay Sommers May 13, 2020 - 4:22 pm

I’m sorry to hear that. Unfortunately, an employer can typically cut your pay at any time, especially if you’re an at-will employee. An employer can cut an employee’s pay as long as an employer follows FLSA minimum wage and overtime regulations and salary basis requirements. There’s a section in this article that explains when a pay cut isn’t legal– you should take a look at that. If you find that it doesn’t seem like it’s illegal, your employer is not being unlawful.

Sandy June 19, 2020 - 8:07 am

My Employer cut my pay without informing me about it

Lindsay Sommers June 22, 2020 - 6:01 pm

The answer is usually no. Your employer should warn you about the payout before they cut your pay. I suggest that you speak with your HR representative about this issue.

Ascensao Verdade July 12, 2020 - 6:48 pm

Hello My boss does not increase my salary for 5 years. What rights do I have ?? Can I claim?

Lindsay Sommers July 13, 2020 - 3:17 pm

If you’re an at-will employee, your employer can choose to reduce or increase your pay at any time. I’m not sure what you mean by “claim”; however, I will say that you can always have a conversation with your employer about receiving a raise.

Cindy Elsberry March 24, 2020 - 6:47 am

Our employer in the state of GA cut employees pay and made it retroactive – 20-50% pay cuts for hours already worked. One of my co-workers called the GA Department of Labor and the individual they spoke with told her that it’s legal in GA to make pay cuts a surprise and/or retroactive. Did she speak with an idiot or is that accurate for Ga?

Lindsay Sommers March 25, 2020 - 4:46 pm

That doesn’t sound correct. I would suggest that you make another phone call to the GA DOL to clarify pay cut rules.

Monica De Los Reyes May 3, 2020 - 11:40 am

Because he got the Paycheck Protection Program, now my employer told me that I have to take the $300 a week instead the $600 from The federal government.
Is it legal, can he do that?

Lindsay Sommers May 6, 2020 - 4:43 pm

I have never heard of an employer forcing an employee to take less than what they’re entitled to. As far as I know, if you are eligible for $600.00 a week, you will obtain $600.00 a week. Your state might have other rules, but I think that’s unlikely. Still, it’s a good idea to check with your unemployment office to see if that’s a legitimate request from your employer.

David Darrell Grace July 16, 2019 - 2:17 pm

I work at a company where the security company has changed four times in 10 years now the company AUS wants to cut the pay I have earned to $14 per hour from $24.00 without notification they said they just discovered after 11 months. Is this legal

Lindsay Sommers July 18, 2019 - 12:32 pm

This depends on if you’re an hourly or salaried employee. According to the DOL, The FLSA requires that all covered non-exempt employees receive at least the applicable Federal minimum wage. The act allows employers to lower the employee’s hourly rate, as long as it doesn’t go below minimum wage.

Dave August 8, 2019 - 1:56 pm

My boss told me he would pay me 15.50 and hour if I work m-f but if I miss a day he drops my pay to 14.00 hourly is this legal

Lindsay Sommers August 12, 2019 - 9:51 am

Hi Dave. Based upon research, it looks as though an employer is allowed to adjust an hourly rate as long as he does not violate minimum wage or overtime regulations. You have a unique case, so I would suggest speaking with someone from your local labor board or a legal counsel to see if you have a case.

Gerad December 7, 2019 - 7:43 pm

My boss was just paying me 15.50 an paid me 3 checks month an a haf an calls an said we got someone else’s pay an my pay is going down to 14 a hour basicly he giving the money to the guys that are always late popping pills milking the clock adding time and hours an the boss knows it an I’m there fall guy

Lille summer April 3, 2020 - 8:18 pm

Question I have a contract with my hired salary wages and benefits I have had 3 raises within 2.5 years because of corona virus our salaries have been cut to lower than when I was hired and we have been required to work 18-20 extra hours per week with no compensation . Is this legal in Ga?

Lindsay Sommers April 6, 2020 - 3:55 pm

It may be illegal if your new salary breaches your original contract or if your new salary forces you to go below FLSA salary basis requirements. I would suggest consulting with a legal counsel for further assistance.

Bruce H. March 31, 2019 - 9:53 pm

My employer see you there my wages almost in half without telling me before hand. It was only after I’d completed my work and my paycheck came in that the reduce in pay was evident. Is that legal? If so, what sort of recourse do I have? Would it be retro? Do I need a maritime lawyer?(I’m a mariner)

Lindsay Sommers April 2, 2019 - 12:46 pm

Under FLSA protection, hourly employees at least need to make minimum wage for their hours worked. You may want to make sure that you are at least making the minimum; if not, then you may want to consider speaking with your supervisor about the issue.

Jane Doe December 7, 2019 - 9:04 am

Wouldn’t the employer need to discuss the pay cut prior to doing the pay cut?

Lindsay Sommers December 9, 2019 - 2:26 pm

An employer should let the employee know if there is going to be a change in pay. If it’s unexpected (a surprise to the employee), that’s not legal.

Mary February 2, 2020 - 2:27 pm

I was going through some old paperwork looking at tax returns and such and came across some paperwork from my job and realized I had received a reduction in hourly pay without being notified. This dates back to 2012. Is there a time limit for getting compensated. I didn’t ever look at the stub I guess I just trusted the payroll person. I noticed it today. It was a $3.00 reduction.

timesheets_blog February 5, 2020 - 2:20 pm

The company can pay you whatever they want. There’s no law that says they can’t reduce your pay. It’s up to you to accept that rate or not accept it. If you have a contract spelling out that’s your pay rate then that would be different.

Lacy mead March 22, 2020 - 2:50 am

Can my pay be cut due to the virus and what is going on now in the world? They said our pay cuts are 20% and I live in NC.

Lindsay Sommers March 25, 2020 - 3:53 pm

An employer can give you a cut in pay as long as they notified you prior, the pay cut isn’t discriminatory, your pay isn’t under minimum wage, and if the paycut doesn’t breach any contracts. For more clarity in regards to the legality of this situation, I suggest speaking with your local labor board.

DJ April 1, 2020 - 3:00 pm

My employer said he would pay additional time and a half for respond to on call emergencies durig the day, then 2 weeks later said hes only paying 40 straight tine, after I responded to many on call emergencies, is that illegal ?

Lindsay Sommers April 6, 2020 - 3:05 pm

It sounds as though your employer changed your pay retroactively, which isn’t legal. I would recommend speaking with your HR representative or a legal counsel. You can even speak with the Department of Labor and file a claim as well.

Adriana July 18, 2020 - 2:38 pm

My salary was 60k last year. My employer gave me two options this week. Either to add more hours for the same salary or to become part-time lose my benefits and get paid by the hour a smaller amount. This was told to me in front of the whole office and was extremely humiliating. I feel uncomfortable and I don’t want to work there anymore. if I quit, will I get unemployment? Thank you very much. I’m supposed to answer to their request in two days.

Lindsay Sommers July 21, 2020 - 2:52 pm

Hi Adriana. Most often you won’t qualify for unemployment if you quit your job, unless if you have a sound reason to do so. Unemployment benefits are usually only given to those who’ve lost their jobs without any fault of their own. If you’re an at-will employee, your employer can choose to cut your pay or hours at any time, but if they’re breaching your contract, that may be an issue. I advise that you speak with your HR representative

Anna April 19, 2019 - 6:04 am

My employer cut my wages to minimum wage rate and made it retroactive to apply to hours already worked because i quit. This was done hours before my pay check was scheduled for direct deposit and came as a surprise. I know it is legal to cut wages for hours not yet worked, BUT what about for hours already worked?

Steve Ballman May 3, 2019 - 4:42 am

In Kansas, my pay rate was changed due to an absence policy. So it was a policy set in place ny the company about missing a certain ammount of hours and losing an entire 60 cents per hour.

My pay rate was changed during a period but I was not notfied until I was paid for two weeks of work, at the lower rate.

Was this illegal by them?

Krystal December 5, 2019 - 9:59 pm

So they gave me a pay cut at work starting monday for 2 weeks (10.75 to 8.60) equalling to 2 days worth of work (monday to friday for 8hrs each day) but im working overtime saturday which is over 40 hrs (one week) . Do i make 12.90 or 16.13?

Lindsay Sommers December 6, 2019 - 4:16 pm

Your overtime rate is normally 1.5 times your normal rate of pay. If your rate of pay is $8.60, then your overtime pay rate will be $12.90.

Renee April 25, 2020 - 10:51 am

During this pandemic, how are the laws applied to Sr staff taking larger paycuts, if a female Sr staff member doesnt earn as much as the male Sr staff? Meaning, how are pay cuts applied legally and illegally? Is there such a thing as discriminatory pay cuts? Or pay cuts being applied ‘unfairly’?

Lindsay Sommers April 28, 2020 - 4:20 pm

That’s a great question. Discriminatory paycuts can exist, however, you would have to prove that the pay cut was done in a way that’s considered “discriminatory”. I would suggest that you speak with a legal counsel to gain an understanding in this matter.

A Seratte May 15, 2019 - 8:47 am

My husband’s worked at same job for same pay for nearly 15 yrs and makes a flat hourly wage (no raises) and commission on gross profit of department. Management just made him sign a take it or leave it reduction in that commission basing it on accessories instead of all sales. Pay cut this month for first check under the new commission rate is $1500, which amounts to 12-18K per year!!! We can’t pay our bills on that much of a reduction and he’s over 62, so it seems to us like they’re trying to force him to quit. Also reducing his pay reduces what they would pay for workers comp if he’s laid off and increases their own pay as they get paid off net profit – the less paid to employees the more upper management makes! This is unethical and I’m sure it’s discrimination. But is it legal?

timesheets_blog May 20, 2019 - 4:32 pm

This is absolutely a question for a labor attorney and definitely us, as we cannot provide this kind of advice. a consultation with one may be in order.

Tim Reed June 4, 2019 - 4:34 pm

My company made a new policy that if someone gets too many points,they give them $3 less an hour for sixty days, with no missed or late days or they’ll be terminated. After the 60 day period, the pay goes back to normal. Is that legal??

timesheets_blog June 5, 2019 - 11:42 am

This is a good question for your local labor board. Let us know what they say! I don’t think it’s illegal, but that’s a guess. The company isn’t obligated to pay you any specific amount unless you’re under contract with them. Do you have a contact specifying your hourly rate of pay? I’m not sure new policy would be enough to allow changing a contract – if you had one. But without a contract, the company is probably free to do as it wishes.

JD June 21, 2019 - 5:24 am

I took on a new role last April in 2018. My employer told me to do the job for six months and they would reevaluate what it was worth. After six months they gave me a raise. That was in October 2018. Now, in June 2019, they are telling me they reevaluated what my job is worth and they’re saying I’m overpaid for my role. So they want to reduce my pay by over double what the original raise was for back in Oct 2018. So my new pay is even lower than what I made when I saw initially accepted the job. Nothing has changed in my job description or role except I have a new boss and the company is reducing costs. This doesn’t seem right but I don’t know what I can do because HR is on my bosses side trying to legally justify that this is OK. Any suggestions?

timesheets_blog June 24, 2019 - 4:05 pm

It doesn’t sound like you signed a contract that specifies your pay. In that case, they can lower your salary any time they want. They just can’t do it for time you’ve already worked at the old rate. It has to be AFTER they tell you that the new rate applies. You’re welcome to accept it, or quit, but unfortunately those are probably your only good options. You have to decide if the job is worth it or not.

JD June 21, 2019 - 5:28 am

I also am in a unique job that was covered by 2-3 people in the past. So there’s not really any internal comparison. But HR is saying I’m paid more than my peers in the “same role.” Not a fair comparison at all. I am fine with them taking back the raise, but not reducing it further. What do I do?

Michelle July 20, 2019 - 12:36 pm

Our company has been sold again – twice in three years. I think the new owners will be cutting wages again. I am a salaried department leader – can they cut my wages substantially and cause me financial harm? If they do and I don’t accept, am I eligible for unemployment? I live in Ohio. Thank you!

Lindsay Sommers July 29, 2019 - 12:07 pm

Hi, there. According to the Ohio Department of Job and Family services, you need to meet these certain requirements to be eligible for unemployment benefits.

timesheets_blog July 29, 2019 - 12:09 pm

Since an employer can adjust your pay rate at will unless you’re under some kind of contract, you might not be eligible for unemployment if you voluntarily quit. You’ll need to find the proper legal answer to this question elsewhere. That being said, it’s not usually a good idea to demote or pay employees less since it causes employees to be less than supportive of the company’s goals – to say the least.

MIKE JONES August 28, 2019 - 7:11 am

I recently made the decision to leave my job. My employer, courted me back with talk of what i do for the company and how I couldn’t be replaced. I was also offered an higher rate of pay. I agreed. Over the next few weeks my duties expanded to which I embraced. 2 months later my employer stayed we needed to talk about my rate. I started that I stayed due to it meeting my financial needs even though I could have left for more money. 2 weeks went by with no conversation but it was mentioned again. On Thursday 8/22/19 I was told.my pay was reduced by $3. I chose to resign. We shook hands and agreed Friday 8/23/19 would be my last day. On my way home I recieved a text stating we should make it effective immediately and I need not work Friday.
Friday 8/23/19 [ picked up my paycheck for the week of 8/12-8/16/19 and the amount had already been changed. I haven’t done anything as of yet, not even unemployment. Is this legal or a normal.practice? What are my options or what direction should take this ?

timesheets_blog September 6, 2019 - 3:29 pm

Generally an employer should not reduce your pay retroactively. I would discuss it carefully with your former employer before taking any other action.

Anonymous July 23, 2019 - 7:52 pm

9 months ago, I was promoted and signed a contract with a specific pay rate listed, but no length of time in the position stipulated. My company just got a new COO a few months ago (I’ve been with the company since 2007). I was just informed that my position is being eliminated to make room for a friend of the new COO. My options are to resign with severance, or go back to my old position with a $10,000/yr pay cut from what I am currently making. I am employed in Louisiana, but the main office of the company is located in Texas. The two employees above me (and below the new COO and his incoming friend) have not been demoted or received a pay cut. All parties involved are male, and I am female. Is this legal?

timesheets_blog July 29, 2019 - 12:06 pm

You’ll have to speak with a proper legal authority for the answer to this. Contract law is, well, contract law and a bit beyond the help we can provide. Good question though. You can also try asking the community on our forums. https://www.timesheets.com/forums.

Matt G August 11, 2019 - 3:10 pm

I just recently took a pay cut of almost 40%. No one else in my dept. got a pay cut. I manage a route doing pest control. My manager informed me of my route cut and told me everything will be adjusted so I can continue to make what I was making. After I got my check and saw the 40% decrease in my pay, I reached out to HR asking if it was correct and they said they miss paid me by $30. I feel like I was targeted due to being the only employee to have a pay cut. Any suggestions what I should do?

Lindsay Sommers August 13, 2019 - 10:49 am

Unless you feel as though you were discriminated against based on race or gender, or if the pay cut was a surprise, your employer can make the choice to give you a paycut. If you feel as though you are being treated unfairly, you may want to speak to a legal counsel to see what your options are.

monique August 28, 2019 - 11:55 am

Hi My company is trying to cut my salary and put me on hourly. Can i not accept their offer and have them lay me off?

Lindsay Sommers September 5, 2019 - 10:03 pm

Yes, you can negotiate a severance with your manager/employer. If they agree, they can decide to lay you off.

Tammy September 12, 2019 - 1:19 pm

My employer (Missouri) recently cut my over time rate without notifying anyone that it was changing. I have the email that increased our overtime or “crisis” rate for working extra hours. When I went to accounting to dispute my pre tax pay I was informed that it had changed 2 pay periods prior to the one I noticed it on. I work a lot of overtime/crisis hours and we never get a pay stub that breaks down our hours and rates for those hours so that is how they got it by me the first 2 times.

Lindsay Sommers September 17, 2019 - 11:50 am

Hi there. Upon my research, Missouri’s law states “Employers must pay at least one and one-half times the employee’s regular rate of pay once overtime pay is in effect. Overtime pay begins once an employee works more than 40 hours in a work week rather than more than 8 hours in a work day. State and federal law does not allow employees to voluntarily waive their rights to overtime pay and accept straight time instead. Any employer that asks an employee to do so violates the law and employees should​ file a wage complaint.” That being said, any hours worked over 40 hours in a work week must be 1.5X your normal pay rate.

Cheri D September 17, 2019 - 7:37 pm

My employer told me i am being paid too much compared to others in the office. When i started we had an agreement on a salary and commission %. It’s been 4 years and now he said he won’t pay me a salary and commission but will adjust my salary. There were also discrepancies in previous paid commissions. When i advised the money due me he said since you were overpaid those commissions are a wash now. My questions are: 1. Is he allowed to not pay me the back commissions? 2. Is there a time frame or notice that I am supposed to get before he can change my compensation package? 3. Commissions are paid out 2 months after they are earned. Is he still required to pay me on the monies I have already earned before he puts the new compensation package in place?

Cheri D September 19, 2019 - 3:57 pm

I am also located and work in Illinois

Kimberly October 5, 2019 - 9:33 pm

I just recently left my job that i had been at for over 7 years. My checks have always been direct deposite. I just recieved my a paper stub from my last work week and noticed that my pay was cut about a dollar an hr. I was never told that they were cutting my pay! It was never a conversation or anything!! I looked at a stub from a few months ago and it was also at the lower amount. Can they do this???

Lindsay Sommers October 7, 2019 - 2:10 pm

You are supposed to be notified about a change in pay. Most likely, your employer will have to give you backpay for all of the hours you didn’t receive the extra pay. I would suggest talking to your HR department.

Pedro Ponce October 29, 2019 - 6:59 pm

I work for a company where I get paid salary plus commission. It Is rumuroed thst beginning of next year, january first, they are taking my ability to make commission, and just pay me salary. It would be a greater salary than I have now, but it could cost me roughly $30K less due to my inability to make commission. Most in my position will get a pay increase, but that is because they don’t sell nearly as much as I do. Is this conaider a surprise since they would just be implanting this without asking or running it by those who would be affected, and thus, illegal!?

Lindsay Sommers November 10, 2019 - 9:21 pm

Your employer will have to speak with you about the wage change, although a wage change is perfectly legal. You can call the DOL Wage and Hour Division at 1-866-487-9243 to see if this is something should be of your concern.

Pastapinata November 7, 2019 - 3:12 pm

My boss had a little meeting in the beginning of the year and said that our commission will start at 28%, and will go up to 30 (the max) if you are in time for the week… but if you are late one day then it decreases 2% for that week and you can go down to lowest of 24%. So usually and for years now we’ve been paid 30% max always. Now 3 months later after nobody has spoken a word about this rule, I find out that he has been paying me at a quickly diminishing rate and stood at 24% now for almost 3 months. Is this legal, because in my eyes I believe I should have been notified of my pay decrease. Since then he had very begrudgingly agreed to pay me the difference up to 28%. And he thinks he is like a god because he’s so generous for doing that. Was this legal?