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When considering pay cuts, weigh the risk of being on the hook for unemployment benefits

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in Compensation and Benefits,Human Resources

Sometimes, employees quit in a huff over a pay dispute and then try to collect unemployment compensation benefits. They may argue that a pay cut justified their resignation.

But unless the reduction is substantial—usually greater than 20% of previous pay—the resignation wouldn’t be justified.

Recent case: Douglas worked as a restaurant manager, earning $68,000 per year. When his supervisor wanted to change his pay, Douglas demanded $35 per hour. The supervisor de­­clined that counteroffer and told Douglas he had to accept the new pay plan or resign.

Douglas resigned and applied for unemployment benefits. He argued that the new rate of pay amounted to a substantial reduction of his wages, which justified quitting.

But a close examination of the offer—which involved a set payment for the first 40 hours and overtime for the next five hours—showed it was about the same as Douglas’ pre­­vious pay.

The court said he wasn’t justified in quitting, and un­­em­­ployment benefits were denied. (Liver­­ence v. Apple American Group, No. A12-1318, Court of Appeals of Min­­nesota, 2013)

Final note: How much of a pay cut might justify quitting and allow the quitter to collect unemployment compensation? Although each case is determined on its own merits, employers that cut 20% or more risk being on the hook for unemployment comp benefits if the employee quits.

It’s one factor to consider when trying to reduce your labor budget in hard times.

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