If the faltering economy has you considering salary and benefit reductions, take heed. Legal experts recommend these precautions:
- Consider contractual obligations. Some employees might have a contractual right to a minimum salary payment that can´t be decreased without the employee´s agreement. If an employee agrees to a modification, the contract will usually spell out how the employer must document it. In addition to employee consent, some employment contracts might require a company representative to agree to the change or set a notification period before a modification can begin.
- Factor in timing. Employers aren´t permitted to make retroactive decreases because they can´t recapture wages an employee has already earned. Common sense dictates that businesses give enough notice for employees to plan accordingly - this includes deciding whether to continue working for the employer if the employee will be earning less.
- Put the decrease in writing. Include a statement that the reduction is permanent and the employee can´t recapture the difference in pay. It makes administrative sense to make a decrease consistent with the employer´s pay periods. Mid-cycle pay adjustments are often confusing and error-prone. Avoid moving too quickly and risking faulty communication. Plan salary reductions with enough time to communicate the changes clearly.
Modifying compensation carries obvious risks. As an employer, failure to follow proper procedures could create serious consequences - and in some states, personal liability for unpaid wages. Never promise employees that a salary reduction is only temporary. Employees who receive this promise might later demand the "unpaid" portion of their wages.
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