Can An Employer Legally Reduce Your Pay? A Guide

Scissors being used to cut a $20 bill in half
Having your wages cut can be startling at best and devastating at worst. You rely on your paycheck to pay your bills, buy groceries, keep a roof over your head, and care for your loved ones. When even some of that money unexpectedly goes away, you may feel sad, hurt, or even embarrassed. You may wonder if your employer has the legal right to cut your wages. Unfortunately, wage reduction is a legally complex issue that only adds more grief to your now-complex financial situation.

In circumstances like these, it is important for you to gain clarity on what is or is not legal when it comes to wage reduction. Just because you see employers do something often does not make it legal. Still, just because you do not like the situation does not mean it is illegal.

The best way to protect yourself is to learn what the law says about pay reduction, employer and employee rights, and legal recourse for employees who feel they have been wronged.

Ultimately, you will be armed with the information you need to answer the question: Can an employer legally reduce your pay?

Federal Laws on Pay Reduction

One major law governs how and when employers can reduce an employee’s pay: The Fair Labor Standards Act. While the FLSA covers a great deal, most of its rules are related to standards for wages and overtime pay.

The law states that all non-exempt employees must make at least the federal minimum wage. The law also states that these employees should be paid at one and one-half times their regular pay rate if they take on any overtime. Therefore, no employer can pay qualified employees less than minimum wage or less than required for overtime.

Circumstances Under Which Pay Can Be Reduced

Is it legal for an employer to cut your pay? Under most circumstances, this behavior is legal because 74% of employees in the United States are considered “at will,” meaning the employer can change the terms of the employment relationship at any time and for any reason.

Consequently, there are a few legal circumstances under which pay can be reduced.

The Business Is Struggling

In times of greater economic recession, business owners may find themselves in a situation where they simply must cut employee pay to stay in business. As long as the employer follows the law in terms of giving notice and maintaining justifiable motivations, it is legal to reduce pay when the company is going through tough financial times.

You Have Not Yet Worked the Time

Businesses cannot retroactively reduce your pay, effectively taking money from current or future wages to pay past wages. However, at-will employers are legally allowed to reduce your pay going forward for time you have not worked.

In many states, all that is required is for your employer to give you proper notice of the change.

A Change in Job Duties

Employers can change your pay rate if the nature of your job duties has been changed.

Whether you have been voluntarily or involuntarily demoted or switched jobs for personal reasons, employers cannot be sued for paying you less for doing a different job. Although employees may not like it or find it favorable, employers who cut pay for these reasons are protected by federal law.

Exceptions to the Rule

While it is true that employers may reduce an employee’s pay in many circumstances, it is important to note that employers do have restrictions on when they can alter or lower an employee’s pay. The exceptions to the at-will rule include the following:

  • Contractual Agreements: Employees under a bargaining agreement or other type of employment contract specifying pay and hours will have different rules. The employer must pay the agreed-upon wage until the contract expires or is voided.
  • Employer Motivation: Employers cannot cut an employee’s pay due to anger, retaliation, or not having enough money in the budget.

Employers have a lot of protections when it comes to wage reductions. However, they cannot break the law when attempting to pay an employee less.

Employee Rights Regarding Pay Reduction

Just as there are some actions that employers are allowed to take without consequence when it comes to cutting pay, there are also some things that employers cannot do:

  • Cut wages below the minimum wage
  • Retaliate due to the employee engaging in a protected activity, such as jury duty or taking FMLA leave
  • Cut wages to discriminate against people of a protected class
  • Violate contracts that specify guaranteed pay and hours for employees

When employers take these actions, employees can bring a case against them in court. Employees may also be entitled to complain against an employer for violating a federal law.

In some cases, employees might be obligated to file a charge or complaint before they file a lawsuit. For example, wage discrimination defendants must file a charge with the U.S. Equal Employment Opportunity Commission for a lawsuit to be valid.

Can a Company Change Your Pay Without Notice?

Person opening an empty wallet after their employer reduced their pay

Whether a company can change your pay without notice is not as cut and dry as other wage and hour law issues.

Employees need to know that there are no federal-level protections when companies change their pay without notice. While an employer can never retroactively cut pay, they do not have to give an employee notice of the pay cut unless their state laws require it.

Some states do not have laws requiring employees to give notice. For example, Georgia and Florida have no laws on the books that require an employer to tell an employee their wages are being reduced.

Employees in states like this must rely on the kindness and practicality of their employer to tell them about an impending wage reduction so they will not be surprised when they receive future paychecks.

Other states, like Pennsylvania, do have such laws. In those states, employers must give notice if they will reduce an employee’s wages.

Common Reasons Employers Give for Pay Reduction

Because many employers can reduce wages without consequence, they do not always have to give a reason to cut an employee’s pay. However, among those employers that give a reason, there are some common threads regarding why they take such an action.

Economic Downturn

Many employers feel the squeeze of inflation or start to worry when sales take a nosedive. Because profits are down, they may look to their biggest expense — employee wages — to cut costs. While this may financially and emotionally hurt the employee, it is not illegal for the employer to do so.

Performance Issues

If an employee is paid on commission for sales and does not make any sales, they have no legal recourse when it comes to a reduction in pay due to commissions not being paid out.

Likewise, suppose an employee does not maintain a certain level of performance at work, and the boss decides they should be demoted. In that case, the business has a right to enact that demotion and the reduction in pay that goes with it, which only becomes a problem when the demotion is discriminatory or retaliation, especially for a protected activity. If discrimination is in play, the wage reduction is illegal.

Attendance Problems

An employer may demote an employee or dock their pay when they do not show up to work during their scheduled time. Again, this is allowed by law. However, it is important that employers do not get into murky waters demoting employees or reducing pay for taking FMLA or attending jury duty. Those activities are protected, and an employer cannot retaliate against someone performing them.

Voluntary Reduction

Sometimes, employers state that an employee just decided to take a lower-paying position for personal reasons, or they accepted lower pay in lieu of getting laid off.

There are no laws against this as long as the employer is truthful about the employee’s voluntary acceptance. Employers are not allowed to intimidate or coerce employees into taking less money.

Legal Recourse for Unlawful Pay Reduction

If you believe your pay has been reduced unlawfully, knowing you have some legal recourse is important. You can take the following actions:

  • Report your issue to the appropriate state or local agency, such as the EEOC or the Department of Labor; this is a required first step in some cases.
  • Hire a personal lawyer to bring a lawsuit against your employer for the payment of missed wages.

Before going down either of these paths, the best thing any employee can do is talk to an experienced employment attorney.

In some cases, your actions can jeopardize your ability to recover damages. An attorney can advise you of your rights, help you file suit, and tell you what not to do so you do not damage your case.

Calculating Lost Wages and Potential Damages

An attorney can properly evaluate your potential case and tell you how much you might be entitled to when it comes to damages. Here is just a brief overview of what you might learn:

  • If you are an hourly employee, subtract your new wage from your old wage, then multiply that difference by the number of hours you have worked in your new job.
  • If you are a salaried employee, you may prefer to break those numbers down into a daily or even hourly rate and calculate the same as above.
  • Think about what you have lost due to your wage reduction — this could be a foreclosed home or car repossession resulting from being unable to pay your bills.
  • Consider how the news of your illegal wage reduction impacted your mental and emotional health.

When your pay is cut illegally, you lose much more than wages. It is important that you hire an attorney who understands what wage reduction truly costs and is willing to go after what clients deserve.

Consult an Employment Law Attorney

You should never move forward with a lawsuit based on pure suspicion when it comes to wage reduction. If you believe you have experienced an illegal pay reduction, you must contact an employment law attorney immediately.

A qualified and experienced wage disputes lawyer will have the knowledge and skill to navigate the complexities of a pay reduction and gather the necessary evidence to prove your case.

Wenzel Fenton Cabassa, P.A. has extensive experience in this area and is ready to assist. Contact our wage dispute attorneys today for a free case evaluation or to learn more about your options. Speak to an attorney who can evaluate your case and fight for fairness on your behalf.

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