The laws that apply to wage decreases vary according to whether you're a salaried or hourly worker, are an at-will or a contract employee and the circumstances surrounding the event. In general, however, the Fair Labor Standards Act allows an employer to decrease wages or reduce work hours to suit business needs.
FLSA regulations say that after a wage decrease your pay rate must be at least the minimum wage for your state if you are an hourly worker. Your employer also can't ask you to work off the clock by taking work home or by working on your day off. You have a legal right to receive pay -- including overtime -- for every hour that you spend working.
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A wage decrease for a salaried employee can't go below the $455 per week minimum required to maintain your status as an exempt employee. In addition, the wage decrease must reflect long-term business needs. For example, your employer can't continually readjust your salary. If this happens, you'll no longer meet the FLSA definition of an exempt employee and will be entitled to receive overtime pay if you work more than 40 hours per week.
The only situation where an employer may not have the legal right to impose a mandatory wage decrease is if you have an employment contract. This often applies if you belong to a union. Unless the contract includes a wage reduction provision, your employer generally can't decrease wages without explicit permission.
Prior Notification Requirements
Although most state wage laws say that your employer must provide advance notice before imposing a wage reduction, many do not specify how much notice is required. However, a wage decrease announcement generally can't be retroactive. You must be paid the agreed upon rate for work you've already performed.
In some situations, a wage decrease might be necessary to save the business and keep you from losing your job permanently. However, a decrease greater than a certain percentage may establish eligibility for partial unemployment benefits or establish grounds to quit with good cause and receive full unemployment benefits. For example, in Texas, the cutoff for quitting with good cause is a 20 percent reduction in pay.
A wage reduction that relates to documented poor performance may leave you with no legal defense. In Jones v. Boyle, et al., No. 11-3098, 3rd Cir., 2012, the defendant Darrin Jones sued his employer for a performance-related wage reduction. The court upheld the reduction, noting it's up to the employer to decide how to handle poor performance.
- Nolo: Furloughs, Hour Cuts, and Pay Cuts: Your Rights
- The Law Dictionary: Can an Employer Legally Decrease Your Salary If It Is Stated in Your Contract?
- National Federation of Independent Business: How to Cut Hours Without Causing a Lawsuit
- Business Management Daily: Pay Cut for Poor Work? Document Carefully