Ask the Expert: Can you Lower Employee’s Pay for Poor Performance?

The short answer to your question is “Yes, it is generally legal to reduce an employee’s pay in order to account for unsatisfactory performance.” Just as employers may increase employee wages for exemplary performance, an employee’s paycheck can also be a viable method for deterring or improving poor performance.

However, as with most HR and employment law questions, there are several caveats to consider first.

• Collective bargaining agreements or other contracts. If the employee is working pursuant to an employment contract, collective bargaining agreement, or similar written agreement, then this document and its terms must be considered before taking any form of disciplinary action, otherwise the employer may be at risk of violating the agreement.
• Minimum wage. State and federal wage laws would still apply, regardless of the employee’s work quality. So while an employee’s wages may be reduced, they may not be reduced below the minimum wage. Similarly, if the employee is an exempt employee, then the rules for maintaining his or her exempt status (payment on a salaried basis of more than $455 per week) must still be followed in order to retain the exemption.
• No discriminatory treatment. Whenever disciplinary measures of any type are considered, employers must always ensure that the discipline is applied fairly and consistently to all employees across the board.

  So, for example, if other employees have engaged in the same type of unsatisfactory performance in the past, then this employee’s discipline should be consistent with the actions taken in the past or, if applicable, written policies. If one employee receives a pay cut while another receives a verbal warning, this differing treatment could spark a discrimination claim and/or harm morale across the board if employees feel that some workers are being treated unfairly/differently.

• No retaliatory treatment. Similarly, discipline should not be imposed in retaliation for an employee’s exercise of protected rights.

In-depth information and guidance on fairly and consistently disciplining employees is available on HR.BLR.com’s Employee Discipline topical analysis page.  You may also wish to check your state’s Termination page to ensure that there is no risk that the employee is being disciplined or retaliated against for engaging in any protected behavior under state law.