If you approach some of your employees with the prospect of reducing their hourly pay rate, odds are that they are going to be opposed. They will certainly want to keep making the same amount they were told they would make when they were hired, and they will likely expect raises the longer they stay at the company. A pay cut does the exact opposite, so it’s not going to be well received.
But say that an employee says it’s illegal for you to cut their pay because you’re violating their rights. Is this true, or do you have this legal ability as the employer?
Legal considerations
Cutting pay is not fundamentally illegal. But there are some things to think about.
For instance, you can’t do it as a form of retaliation. Maybe one of your employees recently filed a sexual harassment complaint with HR. If you immediately cut their pay, it could be seen as illegal retaliation for making that report.
Secondly, you can only cut their rate for future payments, not past payments. Every single hour that the employee has logged under their previous pay rate must be paid at that amount. All you can tell them is that, going forward, they will have a new hourly rate. This gives them the chance to accept it or look for a new job.
Finally, minimum wage laws do still apply. You can reduce someone’s pay, but you cannot go under minimum wage when you do so.
Even if you keep all these legal specifications in mind, a wage and hour dispute could arise. Take the time to carefully look into your legal options if it does.