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Can you reduce an employee’s pay?

May 21, 2024 | Employment litigation

As a business owner, you typically want to give your employees raises. You hope that the company is doing well and that it can increase the earnings for everyone involved.

Unfortunately, this is not always possible. For instance, there could be an economic recession that means your company is not doing as well as you hoped. You may be interested in cutting costs by reducing wages. Perhaps you brought new employees under more optimistic circumstances, but you now have to admit that the high wage rate is holding the company back. Are you allowed to reduce an employee’s salary or how much they make per hour?

Wage changes can only impact the future

Unless there is an employment contract stating otherwise, employers generally do have the ability to reduce wages. This doesn’t mean that the employees will be happy about it. Someone may have only taken the job because of the advertised wage, and they won’t be glad to find out they’re going to be earning less for the same work. But employers aren’t breaking the law to change wage rates, as long as employees get proper notice. 

The important thing to remember is that this can’t be done retroactively. It must be done prospectively, meaning that the wage change is coming in the future. If the worker has already put in time under the previous rate, they deserve to be paid that rate for the hours that they already worked. You can inform them of the new wage moving forward, and they can then decide if they want to continue doing the job at that pay rate.

Financial issues like this sometimes lead to disputes between employers and employees. It’s important for business owners to understand their legal obligations and the steps they can take.