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When Is It Legal to Cut Employee Pay?

By Stephanie Rabiner, Esq. on January 12, 2012 3:04 AM

Whether it's tough economic times or underperformance, there will likely be a time when you'll want to cut employee pay. And at that time, you'll probably wonder whether it's legal to do so.

Chances are you can institute that salary cut. Most employees are at-will, which means you can change their salary so long as it stays above minimum wage.

And as long as you comply with the following laws and rules.

1. Notice. State law may require you to give a designated amount of notice before lowering pay. You can't cut employee pay until you've given notice and the time has lapsed.

2. No discrimination or retaliation. You're probably well aware of state and federal anti-discrimination laws, but what about anti-retaliation laws? They generally prohibit retaliation against employees who have exercised their legal rights or complained about legal violations.

This includes complaints made to regulators and supervisors. So you can't reduce an employee's pay if you think he's a stickler for rules, or because she took family leave.

3. Contracts. Employee handbooks, employment contracts and offers of employment may limit salary cuts. Take a good look at what you promised and any procedures you set forth before making a move.

Even if you've complied with the above, you still may want to check with an attorney before you cut employee pay. Salary cuts can affect a number of circumstances, including those related to employee classification and unemployment compensation. It's best to consider all of these issues before you act.

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