Our company is falling
on hard financial times and we need to cut costs. Rather than laying off
employees, we’re toying with the idea of cutting salaries instead. Are there
any legal roadblocks to this?
– Steven in
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
Generally, there are no
laws, either state or federal, that directly prohibit employers from reducing
employee wages or salaries. However, here are some issues to take a close look
at to make sure the cuts don’t get you into trouble:
1. Do union contracts
cover any of your employees? If so, you probably have to bargain with the union
over the wage reductions or risk violating federal labor laws.
2. Do any employment
agreements promise a specified salary?
3. Are the wage cuts
across the board? If not, make sure the reductions are not targeting or
disproportionately impacting a protected group, such as gender or race.
Otherwise, you could be inviting a discrimination lawsuit.
4. Will the wage cuts
reduce pay below the minimum wage? As of Jan. 1, 2007, the minimum wage in
hour. This will go up to $8.00 per hour next year. Make sure that all employees
earn at least the current minimum wage after the planned wage cut. Also, take a
close look at whether a salary cut would reduce any employee who is currently
exempt below the required minimum salary for exempt workers. Exempt employees must
receive a salary that is at least twice the minimum wage based on a fulltime workweek.
With the new minimum wage rate, this currently comes to at least $2,600 monthly
or $31,200 annually.