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The unkindest cut… How employers can take the sting out of employee pay cuts.

Monday, June 15, 2009

As an employee, it’s a choice you never want to have to make: take a pay cut or possibly lose your job. For employers, the impact can be even more severe. Not only does asking your workers to take a pay cut put a serious damper on morale in the present, it can permanently alter how your employees feel about the company—even if things do turn around.

Boston-based Tarlow, Breed, Hart & Rodgers, P.C., advises a number of businesses small and large as part of its corporate law practice. When it comes to pay cuts, the Firm offers some suggestions for companies looking for a silver lining for this very dark cloud.

“It’s an incredibly difficult thing for an employer to ask their employees to take a cut in pay. First, it’s an admission that your company is not doing well, which is a tough pill for any business owner to swallow. More importantly, a pay cut will negatively impact the lives of people you work closely with day and day out, in some cases, for many years. Despite what some might think, most owners do care about their workers and asking anybody to take a cut in pay not based on the employee’s performance is difficult,” said William Rodgers, a member of TBHR.

So, how do you soften the blow of asking your workers to take a pay cut?

“There really is no way to make a good situation out of asking your staff to take a pay cut. The best you can hope for is to make it less bad,” said Rodgers.

And how do you accomplish that? For starters:

  • Make pay cuts a last resort – exhaust every possibility before even entertaining the idea of pay cuts. If there’s a way around pay cuts, take it.
  • Give something back – perhaps it’s a shorter work day on Fridays (9 to 4 instead of 9 to 5); maybe a more casual dress code; how about an additional sick day or personal day? Giving something back lets employees know that the ownership does appreciate their sacrifice.
  • Deliver the news in person – this might not always be possible. If it is, do it. And remember to apologize. It’s important for employees to know that this is difficult for everybody and you genuinely feel bad about it.
  • Be forthcoming with news – if the pay cuts are temporary, provide employees with regular status reports on how the company is doing.
  • Do not make promises you cannot keep – stating pay cuts are only temporary is one thing, putting a date on when salaries will be reinstituted is foolish unless you are 100 percent certain it can happen.

Chances are, no matter what measures ownership takes, some employees will take the news worse than others. Some may even seek legal action. Having clearly stated policies in your employee handbooks regarding possible wage reductions and associated issues—e.g. switch from salary to a reduced salary and commission—can alleviate confusion and minimize the risk of potential litigation.

“When it comes to asking your employees to take a pay cut, nobody wins. By dealing with the situation with sensitivity, compassion and honesty you can minimize the bad feelings and that can go a long way with the employees who are still on board after the smoke clears from this recession,” said Rodgers.


About Tarlow, Breed, Hart & Rodgers, P.C.

Formed in 1991, Tarlow, Breed, Hart & Rodgers, P.C. is committed to providing high quality, comprehensive legal services to its clients. Featuring a breadth and depth of experience and perspective usually found only at larger law firms, Tarlow, Breed, Hart & Rodgers. P.C. offers sophisticated legal counsel to entrepreneurs, businesses, individuals, families, and institutions.

Tarlow, Breed, Hart & Rodgers’ areas of expertise include corporate law, employment matters, mergers and acquisitions, litigation and dispute resolution, estate planning, taxation, real estate, bankruptcy, and municipal law.

The offices of Tarlow, Breed, Hart & Rodgers, P.C. are located at 101 Huntington Avenue, Prudential Center, in Boston, MA 02199. For additional information, or to arrange for a consultation, please call 1-617-218-2000, e-mail, or visit