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How to Handle a Pay Cut

How to Handle a Pay Cut

By Caroline M.L. Potter, Yahoo! HotJobs

Perhaps you've noticed that business has slowed down around your office, which could be a sign that your company has fallen on tough times. The good news, you learn, is that you still have a job. But before you can say, "Whew," you learn the bad news: Your salary is being reduced.

Don't Accept It

When your supervisor breaks the news to you about your pay cut, do not accept anything immediately. In other words, refrain from conveying any type of agreement, either verbally or in writing. If pushed, you may say something to the effect of, "This is a lot to process right now. I need to think about this and discuss it with my family this evening."

What you want to do is buy yourself some time. Why? You need to find out all the facts surrounding a salary reduction before you accept it. A pay cut can affect your future severance package and compensation for unused sick or vacation days as those numbers are usually calculated based on your current salary -- as are unemployment benefits. Also, the reduced compensation could affect salary negotiations with future employers as your last salary of record could be significantly less than what you are really worth.

Just the Facts

Once you're no longer reeling from the shock, go on a fact-finding mission. Questions to ask your superiors include:

  • Is this a mandatory or voluntary pay cut?
  • By how much will your pay be lowered?
  • Who else is affected by the pay cut?
  • How long will the pay cut last?
  • Could there be retroactive reimbursement?
  • How will this affect raises, bonuses and benefits?
  • Are you going to have to work longer hours or take on additional tasks?
  • What are the company's plans to turn things around?

Questions to ask yourself include:

  • How much do you need this job?
  • Do you have faith that the company will recover from this setback?
  • Can you trust what your superiors are telling you?
  • Is it time to move on?

After gathering information outwardly and inwardly, you may want to speak with an employment attorney to explore all of your legal options and your rights.

It Pays to Negotiate

Once you know the facts and think you may wish to continue at your current job, see if you can negotiate to make the pay cut more palatable to you.

Some areas to negotiate can include your weekly hours and where you work. Suggest a reduced schedule, such as a four-day workweek. Or try to arrange to telecommute to reduce your commuting costs.

You can also negotiate stock options, if you still believe the company is viable and valuable. If you don't have any stock options, ask for some. If you have some, try to get more. If you're not sure what the shares are worth and where the company is headed, do some research online.

Finally, ask the company for a written agreement around the salary cut, when your old pay rate might be reinstated and if there will be any recompense for lost wages. Your supervisor may balk, but if you work for a small company, you may be able to negotiate this.

Exit Stage Left

If at the end of your fact-finding and negotiating you feel cornered, remember you're not. You still have choices and options. However, to exercise any of them, you may need to consult with an employment attorney or your local unemployment office.

Because most people are employed "at will," you or your employer can end the arrangement at any time and your salary can be lowered, as long as it is done for a legitimate business reason. But, if your pay has been cut by an unreasonable percentage, you may be able to quit and still collect unemployment benefits. Rules vary from state to state; check with your local unemployment office before you do anything.

If you have an employment contract, you may be able to refuse the cut altogether or at least quit and collect unemployment, but only if the contract states terms of compensation and says that your employer cannot alter the terms without your consent. The pay cut could constitute a breach of contract; an attorney can help you negotiate the terms of your release or fight for your full pay.

Finally, you can temporarily agree to the pay cut. Update your resume, begin applying for new jobs immediately and look forward to the future with a different employer.

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