Reducing an employee's salary
Is it permissible to reduce an employee's salary?
It's the employer's prerogative to set pay rates for employees and to periodically adjust those pay rates (up or down) unless otherwise defined or limited by an employment or union agreement.
Examples of circumstances that may justify a reduction in salary may include:
- Reduction of hours or work schedule.
- Reduction of responsibility or change in duties.
- Change in work shift or working conditions causing loss of premium pay.
- Reduced or minimal level of performance causing reduction of incentive or productivity based pay.
In the event an impending salary reduction, a prior notice or warning to the employee is recommended. Likewise, when a pay reduction is necessary to reduce costs to save the business during difficult economic times, an employee may consider a job with a lower pay rate to be a better alternative to a layoff.
Clearly communicate to all affected employees the economic conditions and the resulting employment actions being considered.
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