FYI Magazine
Pros and cons to accepting a pay cut
- Created on Friday, 25 November 2016 00:14
- Published on Friday, 25 November 2016 00:14
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It's becoming an increasingly common scenario: A supervisor calls an employee into his or her office and asks if the employee is willing to take a pay cut to avoid being laid off.
Many people are surprised by this turn of events, but should they be? With much of the world still wracked with debt and companies all over facing budgetary cuts and decreased profits,
many business owners are doing what is necessary to ease financial burdens. Rather than put employees on the street, many are offering to let them stay if they accept a reduced salary.
An employee who is asked to accept a pay cut doesn't have to immediately accept the offer, but there are things he or she can mull over if the scenario is presented. Keep in mind permission must be granted by the employee before a decrease in pay can be made; an employer just can't implement it on his own.
In the United States, an employer is prohibited from making any cuts to workers who make minimum wage, even if the employee agrees to it, since it's against the law to pay less than the legal minimum. When a base salary is higher than the minimum wage, the employer cannot reduce it without the worker's express permission.
There are advantages and disadvantages to accepting a salary decrease in times of an economic downturn.
* Pro: You don't lose your job. Job security is a hard thing to come by during a recession. Accepting a lower salary might not be ideal, but you'll still be earning a living. While it may not be as much as you were making, chances are it is more than a government-issued unemployment check or no salary at all.
Con: The cut simply may not meet your budgetary needs. In times of economic downturn, many people live paycheck to paycheck. If you're barely making ends meet, a reduction in salary might not be feasible.
Pro: Accepting a pay cut shows loyalty to a company. For less selfless reasons, a reduction in salary could also mean that your employer will "owe you one" later on. This means you may be able to negotiate other things, like flexible working hours or days off for special events that you may not have had beforehand.
Con: It may diminish your professional standing. Pay rate and position often go hand-in-hand. Taking a cut could put you down a peg on the business hierarchy because it is essentially a demotion. This could impact future business prospects. However, many companies are feeling a financial crunch and may understand the pay decrease once it is explained.
Pro: You can help keep other employees working. Selfless acts like taking a pay cut can mean that others like you may also have the chance to keep their jobs.
Con: It can take a while to regain your pay grade. Some companies will agree to reinstate your original pay rate once they are on more stable financial ground, which removes this risk. But others cannot offer the same promises. It may take a long time to regain financial ground because your current pay grade is often a factor when negotiating a position change or raise.
When the request for a pay decrease is presented to an employee, he or she must sit down and carefully consider all sides of the story. While money is an important factor in this scenario, it is by far not the only one. Also, you may be able to negotiate other things in lieu of a reduction in salary.
* Find out if you can reduce hours instead of just getting paid less for the same number of hours. The figures can come out the same and the upside is you can get more time to spend with family or on other ventures.
* Medical benefits are expensive for employers. Ask if you can terminate insurance to keep your pay the same. You may be able to find an inexpensive medical plan on your own.
* Ask to see what is prompting the pay cut. Find out if other special benefits, such as holiday bonuses, parties, gifts, and other expenses have been trimmed prior to asking you to take a pay cut. If not, find out if they can be.
* Be sure to get everything that is finally negotiated in writing. This way it is a binding contract and you will have legal power behind you if something with the agreement is violated, or if you are eventually terminated anyway.
As a last resort, many companies are asking employees to voluntarily take a pay decrease. Weighing the pros and cons can help individuals decide if this option is feasible. CB11A326
