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Is It Illegal for Employers to Cut Your Pay or Hours?

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Is It Illegal for Employers to Cut Your Pay or Hours?

It's that time of the year, and you're hoping for a salary raise. But instead, your employer reduces your working hours. When that happens, you'll be asking yourself, "Is it lawful for my employer to cut my hours?" 

This has become more common in recent years. In many circumstances, it is permissible for companies to reduce employees' working hours or remuneration. 

Employees who work at will are usually not guaranteed a set number of hours per week or a fixed pay rate. Your employer can reduce your hours and compensation unless you are covered by a collective bargaining agreement or an employment contract. 

It's important to understand that while there are times when it's lawful for an employer to cut your working wage rate, there are other times when it's not. In this article, we'll go over the legalities behind an employer reducing your working hours. 

When is it permissible to do it, and when is it not? Let's dive right in.

What Exactly Is a Pay Cut?

A pay cut is when an employee's remuneration is reduced. Pay cutbacks are frequently implemented to minimize layoffs and save money for the organization during bad economic times. A pay cut could be temporary or permanent, and it could or might not be accompanied by a reduction in responsibility. Raises, bonuses, and benefits are all affected by some wage decreases.

Pay Going Forward, Not Backward

This is the most crucial thing to remember regarding wage decreases. Your employer must pay you the agreed-upon salary for work you've previously completed. They have complete control over salary reductions as well as salary increases. However, they can't reduce your pay without informing you beforehand, and you (the employee) must agree to it.

However, this does not necessarily mean that if your employer says, "I'm going to lower your compensation," you can simply respond, "No thanks, I'll keep my higher rate of pay." That's not how it works. Instead, you can resign before doing any work at a reduced rate.

Wage reduction laws are determined by:

Contract

Legal contracts and agreements, such as employment agreements for high-profile executives and labor union contracts for union employees, bind the employer to pay the stated compensation and usually do not allow the employer to reduce the mutually agreed-upon wage. Contract law, not labor and employment regulations, determines whether an employer violates the terms of the agreement when they offer to reduce an employee's compensation.

If a company is a signatory to a labor union contract, lowering employees' salaries would clearly breach the agreement.

Federal Level Legislation

Even though the Fair Labor Standards Act of 1938 specifies wages, overtime compensation, working hours, and child labor, it does not include measures for lowering employees' pay. Rather, the federal government only states that an hourly employee's pay cannot be reduced below the hourly minimum wage and that a salaried employee's salary cannot be reduced below the threshold for qualifying for the salaried employee exemption.

State Laws

Although federal law does not prohibit employers from reducing employee pay, several state laws require employers to follow specific steps before lowering payment. The laws in each state differ. The Nevada Revised Statutes, for example, demand at least seven days of written notice before an employee undertakes work that is susceptible to a salary cut.

In some states, employers are not required to provide notice. But companies considering pay cuts in other states must give written notice, and if the pay cut is 20% or more, the employer might reasonably expect to lose workers who leave for good reasons due to the pay cut.

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FAQ

Morgan & Morgan

  • When Is It Permissible for an Employer to Reduce Your Pay?

    While we hope that no one ever finds themselves in a position where they must reduce an employee's compensation, the terrible reality is that business owners are occasionally obliged to do so to stay in business. 

    If a firm is experiencing cash flow challenges, it may decide to reduce an employee's pay rather than shutting down the business entirely. 

    Of course, most people would be paid less than face layoffs, but the scenario isn't ideal for either the employer or the employee.

    In addition to their income, a wage reduction can substantially impact employee morale.  

  • How About Salaried Employees?

    When it comes to a prospective pay drop, salaried employees are no exception. Full-time employees are nevertheless vulnerable to a compensation reduction, even if they must be paid the agreed-upon salary for work already completed. An employer must notify a salaried employee ahead of time, and the employee must consent to the decreased salary rate.

    Unfortunately, an employee cannot just say "No, thanks" to lower compensation, and many employees end up resigning because they cannot agree on a new salary rate. You should not be compelled to work at a wage rate you don't like, and you can't force your employer to pay you at a rate they can't afford.

    In rare cases, a compensation clause may be included in an employment contract or a collective bargaining agreement, making it illegal for an employer to reduce wages. The same contract may contain a variation clause allowing your employer to present you with a new employment contract reflecting the lower earnings. When it comes to compensation cuts, union contracts are usually more safeguarded.

  • What About Employees Who Earn Hourly Wages?

    Hourly, non-exempt employees are subject to a different set of rules. Depending on their state, these employees may be eligible for partial unemployment benefits following a pay cut.

    However, your employer can lawfully reduce your employee hours from full-time to part-time and lower, as well as reduce your compensation, as long as they don't break the Fair Labor Standards Act (FLSA) by paying you less than the minimum wage. You are also entitled to time and a half if you work overtime throughout your pay period.

    Another situation when an employer should reduce an employee's pay is when the employee is transferred to a different job or position. While most people equate changing jobs with getting a promotion and a raise in compensation, there are times when the employee may be demoted. A pay cut might be necessary if a demotion occurs and the former pay rate is higher than most persons in the new position.

  • When Is It Unlawful for an Employer to Reduce Your Pay?

    Employers are prohibited from reducing employee pay in several circumstances. Here are a few examples. 

    Reducing Pay Without Notifying the Employee 

    It is illegal for an employee to cut wages unexpectedly. Employers must pay employees the agreed-upon wage rate. If an employer wants to adjust that rate, they must first contact the employee and obtain their consent. There is a specific procedure to follow as well as a suitable protocol.

    An employer cannot fail to inform an employee that the paycheck they have already worked and earned would be less than anticipated. In addition, they cannot alter a pay rate for hours already worked or pay that has already been earned.

    Your boss must give you adequate notice if they reduce your earnings. You can then decide whether you want to continue working for them or resign. They must also treat you decently and provide advance notice so you can determine whether or not you wish to continue working for a lesser wage. You have the right to fair notice; if your employer fails to provide it, you can take legal action against them.

    Pay Cut Below Minimum Wage

    This occurs when your compensation is reduced to below the minimum wage. Although the federal minimum wage is fixed at a certain amount, many states have better minimum wages. Even if you agree, working for less than the minimum wage is always illegal.

    Discrimination

    Employers are not allowed to reduce pay based on gender or race. For example, if the employer reduces the working hours of all men except women, this would be an example of discriminatory action. 

    Another example would be if everyone over the age of 40 received a pay cut, but those under 40 did not. According to federal laws, each of these situations would be illegal.

    When You've Signed an Employment Contract

    When an employer contracts with their employees, they are legally obligated to pay them the agreed-upon rate for a specified period. So if you or your loved one has reduced working hours despite having a contract with the employer, you may need to speak with a labor and employment attorney. 

    Retaliation

    If an employee complains about sexual harassment or other inappropriate behavior in the workplace, the employer cannot reduce the employee's wages as a form of retaliation. In addition, some regulations protect you from reprisal if you report illegal or unethical employment activities.

    There are laws in place to protect you from reprisal. Suppose you suspect your company has retaliated against you. In that case, you should consult an employment law attorney who is familiar with these laws and can advise you on how to file a claim against your employer to recover damages.  

  • What Should You Do if Your Boss Illegally Reduces Your Pay or Working Hours?

    If you are still employed and your income has been legitimately reduced, you should first try to resolve the issue with your employer. One of the first things you should do is find out from the payroll department or officials whether the salary drop was done on purpose or by accident. Mistakes happen; if this is the case, the payroll department should correct the problem promptly without any issues. 

    If the payroll department confirms that your income is correct, consider communicating with your employer to find out why the sudden change. Remind them that reducing your compensation without advance notice is illegal. If communicating with your employer or supervisor does not resolve the problem, the next best option is to contact the HR department to see if they can help. If you've talked to HR and exhausted all other avenues and still can't come to an agreement, it's time to consult an employment lawyer.

    Consult With an Employment Lawyer

    If you suspect your employer has reduced your hours or wages illegally, you should consult an employment law attorney to establish the best course of action. 

    In such cases, you only have a limited time to file a claim. In most cases, you will only have 180 days to file your claim. You will not be able to receive compensation for your damages if you wait too long to file a lawsuit against your employer.

  • How Can Morgan & Morgan Help?

    Morgan & Morgan files the most employment litigation cases in the country, including those involving wrongful termination, discrimination, harassment, wage theft, employee misclassification, defamation, retaliation, denial of leave, executive pay disputes, and more. 
    Our lawyers have the knowledge, commitment, and experience to represent workers in various labor conflicts.  

    When you contact us for a free, no-obligation case evaluation, we will review your claim and inform you of the next step forward. And if you have a valid claim against your employer, we will walk you through the steps of filing a claim. We will also investigate the incident thoroughly and collect crucial evidence to help you prove your case against your employer.

    Remember that we are the largest personal injury law firm in the United States. So choosing us to work on your case sends a clear message to your employer that you know your rights and have a team of attorneys ready to defend them at all costs. 

    If you believe you have been treated unfairly or illegally at work, please contact us immediately by filling out our free case evaluation form. Our labor and employment attorneys might be able to help.
     

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