Most of us are perpetually focused so intently on a raise that we often forget pay cuts can happen too. If this possibility arises, you don't want to be left wondering: Can a company lower your pay without telling you? Is it even legal? You need to know your rights and what to do next to make sure you’re getting what you deserve.
We've talked to employment lawyers to understand what the law says about payroll cuts so you can be prepared for it.
Can an employer legally reduce your pay?
Yes, an employer can legally reduce your pay, but there are specific conditions and legal requirements they must follow. There are certain things employers must do according to federal and state laws.
Provide prior notification
Employers must provide prior notification before making any changes to your pay. This prior notification should be clear and in writing, and explain the reasons for the pay cut along with the effective date.
According to the Fair Labor Standards Act (FLSA), while there is no specific federal requirement for advance notice of pay cuts, failing to notify employees could lead to breach of contract claims if stipulated in an employment agreement.
Comply with minimum wage laws
Employers can't reduce your pay below the federal minimum wage of $7.25 per hour or the state minimum wage, whichever is higher.
Relocation adjustments
If you move to a different state with different cost of living or labor laws while working at the same job, your employer can adjust your pay accordingly. This adjustment should comply with the applicable minimum wage laws and be communicated in advance.
Adhere to employment contracts
Any changes to your pay must comply with the terms outlined in your employment contract. Employers must honor these agreements unless both parties agree to amendments.
Adjust pay for position changes
If you switch roles within the company, your employer may adjust your pay to reflect the new responsibilities. These changes should be communicated clearly and in writing, aligning with industry standards for the new role.
Consider economic conditions
During economic downturns, companies might implement pay cuts to avoid layoffs. According to the Worker Adjustment and Retraining Notification (WARN) Act, employers must give 60 days’ notice of large-scale layoffs or significant pay reductions.
Your rights regarding pay cuts as an employee
Understanding your rights during the pay reduction process is crucial. Here’s what you need to know to protect yourself:
Right to prior notification
You have the right to receive advance notice of any pay changes. This notice should detail the reasons for the pay cut and the date it will take effect.
Minimum wage protection
Your pay cannot be reduced below the federal or state minimum wage. This protection ensures you maintain a basic standard of living.
Protection from discrimination
Any pay cut must be applied fairly and without discrimination. Employers cannot reduce your pay based on race, color, religion, sex (including pregnancy, gender identity, and sexual orientation), national origin, age (40 or older), disability, or genetic information.
If you believe your pay has been reduced for discriminatory reasons, it is crucial to document the situation and seek legal advice to understand your rights and potential actions.
“Employees can file a complaint with the EEOC if they believe a pay cut was due to discrimination or in retaliation for whistleblowing,” says lawyer Christopher Lyle. “I’ve had success getting pay reinstated in these cases. The Fair Labor Standards Act and Title VII protect employees nationwide.”
Contractual rights
If you have a contract or are part of a union, your employer must adhere to the terms regarding pay adjustments. Review your contract or collective bargaining agreement to understand your protections.
“Employment contracts often specify terms for pay changes, like notice periods. If a contract prohibits pay cuts, employers risk legal action for breaching it,” says attorney Michele Diglio-Benkiran. “Absent a contract, most employees are at-will, but maintain rights against discrimination and retaliation.”
You can contact an employment lawyer to make sure your contractual rights cover cases of reduction in pay. “If a pay cut violates the contract, employees can pursue legal action,” Lyle says. “Even without a contract, a pay cut cannot be discriminatory.”
Protection from retaliation
Employers cannot reduce your pay as a form of retaliation for engaging in protected activities, such as filing a complaint or participating in an investigation. Any retaliatory pay cut is illegal under laws enforced by the Equal Employment Opportunity Commission (EEOC).
How to proceed if your pay is being cut illegally
If an employer does not follow the legal rules for reducing pay, take these steps:
1. Document everything
Keep a detailed record of any communications regarding the pay cut, including emails, letters, and meeting notes. This documentation can be crucial if you decide to challenge the pay cut legally.
2. Seek clarity from your employer
If the reasons for the pay cut are not clear, ask your employer for a detailed explanation. Understanding the rationale behind the decision can help you assess your next steps.
3. Consult an employment law attorney
If you believe the pay cut is illegal, consult with an employment law attorney. They can provide valuable insights into whether your situation warrants legal intervention and help you understand your rights and explore possible legal actions.
4. File a complaint
If you suspect your pay cut violates labor laws, you can file a complaint with the Department of Labor. This is especially important if you believe the reduction is retaliatory or discriminatory. Keep detailed records of communications and any notices you received about the pay cut.
5. Collective bargaining agreement
If you are part of a union, your collective bargaining agreement might provide additional protections against pay cuts. Contact your union representative for guidance, as they are well-versed in employment law and can offer substantial support.
Common questions about payroll cut
Let's go over some frequently asked questions about facing a reduction in pay.
Do I have to accept a pay cut?
When the employer presents you with new mandatory working conditions, you have the right to reject the new contract, which means resigning. Weigh the potential risks and benefits of refusing a pay cut and consider seeking advice from an employment law attorney.
Can I be forced to take a pay cut?
While employers can reduce pay, they cannot force you to accept the new terms. However, you must know that refusal might lead to termination or other consequences.
What happens if I refuse a pay cut?
Refusing a pay cut could result in termination, but you might be eligible for unemployment benefits depending on the circumstances. Evaluate the potential risks and benefits of refusing and consult an attorney if needed.
Can you collect unemployment if you refuse a pay cut?
Yes, in some cases, you might be eligible for unemployment benefits if the pay cut is substantial and you can demonstrate that it significantly affects your livelihood. Check your state’s unemployment insurance policies for specific criteria.
Can a company change your pay without notice?
Employers should provide advance notice of any pay changes. If your pay is cut without notice, this could be a breach of contract or a violation of state labor laws.
Can an employer reduce your pay due to performance issues?
Employers can adjust pay based on performance evaluations, but such changes should be documented and communicated during performance reviews. Ensure you receive written feedback explaining the reasons for any pay adjustments.
Can a company lower your pay if you move to another state?
Yes, if you relocate to a state with a different cost of living or labor laws, your current employer can adjust your pay accordingly. This adjustment should comply with the applicable minimum wage laws and be communicated in advance. Employers often make these adjustments to reflect the economic conditions and cost of living in the new location.
Possible reasons for salary reduction
There are various reasons why an employer might decide to reduce your salary. Understanding these reasons can help you navigate the situation more effectively:
- Economic downturns: During periods of economic hardship, companies might implement pay cuts to avoid layoffs and keep the business afloat. These measures are often temporary and meant to preserve jobs in the long run.
- Performance issues: If an employee’s performance does not meet the company's standards, employers might adjust pay based on performance evaluations. Such changes should be documented and communicated during performance reviews.
- Position changes: When employees switch roles within a company, their pay might be adjusted to reflect the new responsibilities and industry standards for the position. This ensures that compensation is aligned with the job's requirements.
- Company restructuring: During mergers, acquisitions, or organizational restructuring, companies might adjust salaries to align with the new corporate structure and financial goals. This process should be transparent and communicated to affected employees.
- Relocation: Moving to a different state with varying costs of living or labor laws might result in pay adjustments. Employers make these changes to reflect the economic conditions and maintain equitable compensation practices.
- Legal compliance: Employers must comply with federal and state wage laws, which might necessitate adjustments to ensure all employees receive at least the minimum wage and any other legally mandated benefits.
A reduction in pay should always be the last resort
While these are all plausible reasons to cut your pay, the experts we consulted share the same opinion: A payroll cut should always be the last option.
“Before pay cuts, employers should try reducing hours or benefits. Cuts should be a last resort, as they damage morale, productivity, and risk legal issues,” Diglio-Benkiran says. “The best approach is compromise through open communication.”
“I advise employees to suggest alternatives, like reducing benefits or hours temporarily instead of cutting pay,” Lyle says. “If pay must be cut, get guarantees in writing that it will be reinstated.”
Give negotiation a chance
As a lawyer who has seen firsthand how pay cuts can unfairly impact livelihoods when not handled properly, Benson Varghese, Board Certified Criminal Lawyer, founder and managing partner of Varghese Summersett PLLC, talks about how both parties can benefit from clear communication and negotiation.
“Legally, written contracts or handbook policies outline the process, but I've found understanding each other's needs matters more,” Varghese says. “Once, a client feared cutting costs meant cutting staff. We talked through options, and they discovered giving employees partial unpaid time off kept insurance. Production stayed whole, and all stayed employed—a true win-win.”
“Ask about alternatives like reduced scheduling. Bring solutions, not demands—cooperation gets better results,” he says. “One client successfully bargained working four days instead of three at full pay when sales dropped—simple, but it saved her job.”