“Modifying pay” pay has the potential for significantly impacting your workplace culture. If you’re considering reducing pay to your employees as an alternative to layoffs, you should carefully review all of the ramifications. These include how a pay rate reduction would influence:
- Your workplace morale, and hence, employee productivity
- The possibility that your best people will take another job elsewhere
The impact of a pay modification will no doubt be heavily influenced by your company’s culture. For example, if you have a relatively small number of employees who understand that a cut in pay is a last-resort step to keeping your business in business, they’ll probably be far more willing to make the sacrifice to save the business — and their jobs. And of course, this kind of sacrifice goes down far more easily if you, along with your senior management, are also willing to take on a similar level of austerity.
According to Wharton Business School professor Peter Cappelli, who directs the Wharton Center for Human Resources, many business executives believe that good talent will change employment to find the best opportunities. Thus, they don’t subscribe to the notion that employees would willingly make sacrifices for the good of their fellow employees — in terms of saving jobs through across-the-board pay cuts. But, Cappelli observes, this alternative to layoffs “might actually build some morale and knit the company together.”
Under federal law, you can reduce your hourly employees’ pay rate if you continue to adhere to minimum wage standards. As discussed in the previous section, a wage cut for a salaried employee may impact their exempt status, so make sure you know where you — and they — stand in this regard.