"It’s fairly common to fantasize about the day your boss calls you into their office and finally offers you that well-deserved raise. Maybe they even throw in a corner office. What’s less common, and what some people may not even realize, is that your boss may be able to ask you to take a pay cut.
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Why does this happen? One strategy some employers use to retain as much staff as possible during periods of economic downturn is to ask their employees to take a pay cut. This is a conversation no one wants to have, but it is one you may have to face if your company is struggling in light of recent events. If you do get asked to take a pay cut, you don’t want to be caught completely off guard. While it may never happen to you (fingers majorly crossed!), we’re going to answer a few questions that will help prepare you in case you are approached about taking a pay cut one day.
Understand what taking a pay cut means
In short, taking a pay cut means your company will start paying you less to do the same job. While in very rare scenarios, a company may do this if an employee is underperforming; but in light of the pandemic, some companies are doing this simply to keep as many of their employees employed as possible while they fight through a difficult economic period.
In a 2020 study by the Pew Research Center, a third of respondents reported that either they or someone in their household had to take a pay cut in April of this year. Another study by the Conference Board found that 537 public companies have cut their top managers since the Covid-19 pandemic began. While it’s difficult to anticipate what a pay cut will look like, as every company will take a different approach, one study that reviewed changes at 22 public and private technology companies discovered that non-executive employees experienced pay cuts by an average rate of 10 to 15 percent in recent months.
Do I have to take a pay cut?
Maybe. If you are “hired at will,” which most employees are, then they can lower your pay or reduce your hours, as long as they don’t drop your pay below minimum wage. Workers with employment contracts may be in a different boat, but chances are an employer won’t ask someone with an iron-clad contract to take a pay cut.
Know your rights
Your employer has to notify you before reducing your pay or hours, and a pay cut cannot be done discriminatorily—things like race, religion, gender, or age can’t be the reason for the cut. If you’re protected by a bargaining agreement or employment contract, they can’t lower your pay, so make sure you review your contract carefully.
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My employer asked me to take a pay cut… what now?
Ask how long the pay cut will last
Unfortunately, a pay cut can go on indefinitely. Chances are your company won’t have a clear-cut answer for you, but you still need to ask how long the dip in your salary should last. They may know that big contracts will be paid out in six months’ time or that once social distancing comes to an end that they can bounce back. You need to have a conversation about this, but don’t expect any promises made—and don’t bank on any that are.
Ask for something in exchange
If your pay is going to be cut, now is the time to negotiate for more vacation days or more work-from-home days (not super relevant right now, but secure them for the future!). Something you can consider asking is if you’re able to work fewer hours in exchange for losing compensation.
Ask the right questions
Do not be afraid to ask questions! You have every right to know exactly what is going on, why it is happening, and how you will be affected by these changes. Here are a few questions you deserve answers to, so make sure you ask them.
- Why are you doing pay cuts?
- How many of my colleagues are being impacted by pay cuts?
- When will it take effect?
- How long is the cut anticipated to last?
- Are you taking away or lessening my 401(k) match?
- Will my health care costs rise?
- Are any benefits going to change?
- Is there the potential for more pay cuts to happen in the future?
- Will my hours and responsibilities remain the same?
- What are the company’s long-term plans for recovery?
Decide what you want to do long term
The coronavirus pandemic has caused so many companies to struggle, not just logistically but financially as well. As of September 2020, Yelp found that almost 98,000 businesses on their platform had permanently shut down during the pandemic. Companies that choose to do pay cuts instead of layoffs are trying to keep as much of their staff employed as possible, while also attempting to avoid plummeting morale for their staff. If a pay cut is too financially difficult for you, then you’ll want to start looking for a new job that can compensate you the amount that you need now. You need to prioritize your financial health and career, and you shouldn’t feel bad about doing that.
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How to turn down a pay cut gracefully
In some cases, your employer may be informing you of a pay cut; in other cases, they may be asking employees to take pay cuts in order to help the company. If this is the case, pause for a moment. You don’t have to give your boss an answer right away. You can tell them that you need some time to digest the news and can schedule a time to talk another day. That will give you time to take a breath, talk things over with a partner or parent, and formulate a thoughtful and polite response.
If you do decide to reject the pay cut, you do not need to get into the details of your personal finances. You can simply say that while you understand the company is going through a difficult time, taking a pay cut isn’t feasible for you right now. If they push the issue further, you may want to involve your HR rep in any future conversations about the topic.