Can I Reduce My Employee’s Pay?


Reduce payThis is really an issue for the employer paying an exempt employee a salary.

Performance issues

It becomes an issue when business slows or employer has an issue with an employee’s performance.

The regulations

I am going to digress here; the regulations provide that an employer cannot reduce an employee’s “salary” because of an employee’s absences occasioned by the employer or by the operating requirements of the business.”

Taken literally, you should read this to say that an employee’s salary cannot be reduced. Like most things in the law, this issue is not black and white. The Department of Labor gives some guidance to employers struggling to balance the budget.

The DOL has stated that the requirement that exempt employees receive at least a “predetermined amount” as salary does not preclude an employer from making occasional prospective salary reductions before the affected pay period in response to business needs.

How it works

An occasional prospective salary reduction can be made prior to the current pay period. So an employer may reduce an employee’s salary for business slow downs, but not during the pay period the employee is already earning wages in.

Legitimate occasional reductions in salary are okay; however, an employer must be careful to avoid the practice looking like a sham. One court put it this way:

“This is not to say, however, that exempt status cannot be defeated by a pervasive manipulation of payments that makes a ‘sham’ of what purports to be salary.”

An employer may reduce an employee’s salary and not fear losing an exemption. However, the employer must be careful to not make it a regular practice or use it in such a way as to gut the salary component of the professional, administrative, or executive exemptions.

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