Decrease in Pay Law

In order to prevent injustices associated with wages and work conditions, each state sets its own standards and rules governing such topics. The federal minimum wage which is set by the FLSA is currently $7.25 per hour. However, each state has set their own minimum wage laws; additionally, the employee is entitled to receive the higher of the two wages.

Some local cities and counties have living wage laws which set a higher minimum wage. These laws apply to the companies that are contracted to do business in the local area or government. Under these circumstances, the employer must pay the highest minimum wage, whether that would be the federal, state, or local rate.

Additionally, although minimum wage determines the hourly rate, employers do not need to pay their employees by the hour. As long as the total amount paid that is divided by the total number of hours worked equals at least the minimum wage, it is legally compatible.

However, not all employers are required to pay the minimum wage. In order for the employer to pay its employees minimum wage, the business must receive $500,000 or more in annual sales. Secondly, your employees must work in interstate commerce, which generally means doing business between the states.

The following are some examples of employees that are generally exempt from receiving federal minimum wage:

• Independent contractors;
• Outside salesperson;
• Workers on small farms;
• Switchboard operators who are employed by phone companies with no more than 750 stations;
• Workers of seasonal amusement and/or recreational business;
• Employees of local newspapers which have a circulation of less than 4,000;
• Newspaper deliveries; and
• Students and learners as defined by law.

It is important to note that employees may still be covered under their state or local laws, if not federal. For employees who earn tips, the minimum wage guidelines can vary, as the federal law allows for employers to pay a different hourly rate for those employees who are regularly receiving tips. However, these tips must amount to enough to meet minimum wage requirements.

Wage laws may also regulate a decrease in pay. Your employer must pay you the agreed-upon salary for work that you have already done; while they can lower salaries similar to how they can raise salaries, they cannot lower your salary without providing you with advance notice. Additionally, you as the employee must agree to the decrease in pay.

What this means is that you could quit your job before doing any work at the offered lower rate of pay. Doing so is legal, and may make the most sense for you if your employer orders a decrease in pay.

Can Your Employer Decrease Your Pay?

Generally speaking, an employer can legally reduce your pay if you are an at-will employee. However, to reiterate, most states have determined that the employer is required to first provide you with notice of the pay decrease. Additionally, some states have determined that this notice must be in writing. Once you have been notified, the employer can pay you at the lower rate.

Your employer cannot reduce your hourly wage for the time that you have already worked. It is imperative to note that under no circumstances can your employer reduce your wages so that they fall below either the state or federal minimum wage.

However, every state has determined that an employer cannot simply cut your paycheck because they are angry that you have resigned, or because they are short on the payroll. This would be unethical, as well as illegal.

The reality of the business world is that an employer is sometimes forced to lower pay in order to stay in business. An example of this would be how if the business is having problems associated with its cash flow, the choice may be to either shut the company down, or cut employees’ pay. Generally, most people would prefer to get paid at a lower rate than to lose their jobs entirely.

Because a decrease in pay will be detrimental to the employees, if a company must lower pay for financial reasons, it is imperative that the boss gets the same percentage pay cut. Another example of when it is appropriate to cut an employee’s pay would be when there is a substantial job change. When a demotion occurs, and the previous salary is considerably above what other people in the new position are receiving, a pay cut could make sense.

When the demotion is voluntary, such as accepting a lower position in order to have less stress or a completely different set of tasks, you will likely be more willing to accept a pay cut. However, when the decrease is involuntary and you are making less money doing a different job in another department, the pay cut becomes largely detrimental.

What Do You Do When Your Employer Cuts Your Pay?

When your employer cuts your pay, the legal action that may be available to you largely depends on what state you are employed in. In some states, a state agency will address employment issues, and any dispute over reduced wages should be brought to them. Other states have no state agency who is in charge of reductions in pay; as such, a private action against your employer would be the only way in which to recover lost wages.

The following are some examples of what would constitute an illegal pay cut:

• No prior notification about the pay cut, as pay cuts cannot be retroactive or unannounced;
• The pay cut is a response to some protected activity, such as when you report that your boss is sexually harassing you and your pay is cut, as this would be retaliation which is illegal;
• The pay cut is discriminatory, such as against one protected class of employees and no others;
• The pay cut drops your salary below the minimum wage, as dropping below the minimum wage is always illegal, even when an employee agrees to it;
• You have an employment contract stating otherwise, such as in union situations, as you cannot lower the pay of a person whose pay rate is set by a contract without first renegotiating the contract; and
• The pay cut for an exempt employee is temporary, as one of the requirements for exempt employees is that their pay remains the same, regardless of the number of hours that they work.

If you learn of the pay cut after you have already quit your job, you can file a complaint with your State Department of Labor. However, if you are still employed, you should attempt to work out the problem internally. You can do this by clarifying with payroll whether the decrease in pay is a mistake, as payroll can easily correct the error.

Your next step would be to contact Human Resources, as well as your boss’s boss. After you have exhausted all of your internal options, you should call your State Department of Labor before pursuing any sort of legal action.

When Do I Need to Contact a Lawyer for an Issue with Decrease in Pay?

If you are being subjected to a decrease in pay, you should contact an attorney who is familiar with employment law issues. An employment law attorney can help you determine whether to file a claim with a state agency or to bring a private lawsuit, and will represent you in court as needed throughout the process.