Anytime you want to cut an employee’s pay, you run the risk of getting sued. It’s just that simple. This is especially true if the employee is in a protected class. Anyone can try to file a lawsuit for any reason. Let’s just get that out there.
That said, the reason and circumstances surrounding a cut in pay are key.
In the U. S., employers can cut pay as long as the employee isn’t covered by a collective bargaining agreement or some other agreement, like an employment contract. The cut also cannot reduce the pay to a level that’s less than the minimum wage. If the position is exempt from the overtime laws, (Fair Labor Standards Act), then you must keep the salary above the minimum to maintain exempt status. Just know that there is the new minimum salary level of $47,476 that goes into effect December 1, 2016, and that if the person is to stay exempt, that test must still be met.
Note: the employee may be eligible for unemployment compensation for the pay that’s lost.
How Much Notice Must I Give?
In Florida, where I am, there are no laws that address when or how you may cut an employee’s pay or whether an employer must provide notice prior to the reduction. That said, the reduction can only apply to hours worked after the status change. (i.e. Salaried workers would be paid the new rate the following full workweek, as you cannot separate out hours without giving up exempt status). It’s up to you–in Florida– if you want to give notice and how far in advance you want to do so.
When is it Illegal to Cut Pay?
- When you don’t give notice (in some states). Pay cuts can’t be retroactive (in all states).
- When you cut pay in response to protected activity. e.g. An employee files a sexual harassment complaint, and then you cut the employee’s pay as a result. (Title VII retaliation). An employee complains about working conditions or wages on social media, and you cut pay as a result. (NLRA retaliation–NLRA covers non-union employees, too).
- When you only cut pay for specific classes. e.g. It’s discriminatory to cut all Asians’ pay, but no one else, or pay for everyone over 40, but no one else, etc.
- When the cut drops pay below minimum wage, even if the employee agrees to the cut. Where federal and state minimums differ, the higher rate applies.
- When there is a contracted amount or there is an employment contract. Most common in union situations where each job’s rate is clearly spelled out.
- When the exempt employee pay cut is temporary. One requirement for exempt employees is that their pay rate remains the same, regardless of hours worked. A temporary cut is illegal, e.g. cut for a few weeks or months, but a permanent cut is legal.