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How can we legally cut all salaries by 10%?

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in Compensation and Benefits,Human Resources

Q. We need to cut our payroll costs. Is there any reason we can’t cut everyone by 10%? All our employees are at-will. — T.P., Pennsylvania

A. You can cut employees’ wages prospectively, but you need to give them notice before the beginning of the pay period in which you want to make the reduction. Plus, the cut cannot bring their wages under the minimum wage. If your employees are at-will, the terms of their work can be changed anytime after notification.

It sounds like you intend to implement the cut across the board, so that should eliminate the risk that an employee could claim differential treatment. You should not be selective. That could open you up to allegations that you discriminated on the basis of some protected characteristic like race, age or sex.

However, you may want to consider the impact on morale. With the job market improving ever so slightly, a pay cut may mean some key employees will look for other opportunities. Instead, consider cutting certain benefits or requiring higher co-payments for doctor visits and the like.

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