Decrease in Pay (Cut in Pay)

Definition

The term decrease in pay refers to a reduction in the total compensation paid to an employee.  Companies may institute a decrease in pay when there is a downturn in the economy or a need to increase profitability.

Explanation

Also referred to as a pay cut, a decrease in pay is the lowering of the compensation paid an employee.  This decrease can take several forms, including a reduction in base salary, incentive compensation, and bonuses.  Companies that reduce benefits, or increase an employee's share of costs, effectively decrease the employee's take home pay too.

If an employee does not have a contract with their employer, they can legally reduce their salary at any time and without cause. The employee does have the right to decide if they are willing to take the pay cut or terminate employment.  If an employee decides not to accept the decrease, they should understand if they are entitled to a severance package.

Individuals that have an employment contract with their employer are generally guaranteed the salaries specified in the contract for the duration of the agreement.  Employers may be able to justify a decrease in pay if they can prove there has been a violation of the agreement, which may include threshold performance standards.

If the legality of a decrease in pay is called into question, the best course of action is to consult with an experienced labor attorney.

Related Terms

on-call time, travel time, waiting time, sleep time, pay in lieu of notice