Performance-Based Pay Cuts: Legal, not advisable

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in Employment Law,Human Resources,Leaders & Managers,Performance Reviews

Q. We do yearly performance evaluations, during which we review whether employees have met the expectations we laid out during the previous review. If these expectations were not met, can we legally decrease the employee's salary as punishment? —A.L., Iowa

A. From a strictly legal perspective, you can change an at-will employee's wages, hours and other terms of employment at any time and for any reason (except for an unlawful/discriminatory reason). The employment at-will doctrine isn't limited to termination.

From a practical perspective, however, we advise against performance-based pay cuts. Cutting wages is an unusually harsh action that is sure to adversely affect employee morale. If an employee's performance is unsatisfactory, it may be more appropriate to grant no wage increase, or to implement progressive discipline that eventually can lead to discharge.

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