How to handle a pay cut
What to do when you get to keep your job but your paycheck is slashed.
The day your boss tells you that your salary is being reduced is not your best one. Taking a pay cut is nobody's idea of career advancement. If your company is in trouble, though, they may be slashing pay across the board, and the decision isn’t personal—it’s business.
Unless you’ve been in the company’s financial loop, your financial demotion might take you by surprise. It’s a good idea to tell your boss you’d like time to absorb the information and then you’d like to discuss it.
“I think people need to take their time and digest,” says Matthew Burr, a human resources consultant in Elmira, New York. “Don’t make any rash decisions or get emotionally upset at the meeting.”
Remember that you’re not powerless in this situation. Take these steps to manage your reaction and your future career path.
Find out what’s what
Step one: You need the details. Here are some questions to ask:
- Why is this happening?
- When will it take effect?
- How many people are being impacted at the organization?
- Is this a one-time thing, or are there other potential pay cuts in the future?
- Are other things going to be cut, like benefits?
- Are they taking away the 401(k) match?
- Will health care costs rise?
- Are training costs or continuing education going to be eliminated?
- Is there any chance of my income being restored after the company goes through this rough patch?
- How will my hours or responsibilities be affected?
- What are the company’s long-term plans?
Don’t be afraid to negotiate
Your company knows taking a pay cut isn’t the best scenario and probably anticipates that some of its employees are going to jump ship. If you’d like to stay, you may be able to discuss other benefits your company could extend in lieu of your lost salary.
Ask if there's a way to consider an extra week or two of vacation. Ask, “Is there a way to negotiate a retention bonus—a one-time bonus that does not affect my future pay issues,” Burr suggests. If a one-time retention bonus is possible, you’d likely be signing an agreement that you’d stay for at least a year after receiving it, so think it through.
Work-life balance is another area where you can make some headway. Now’s your chance to ask whether you can work from home one or two days a week, or whether you can work four 10-hour days and take Fridays off. Perhaps you could reduce your work week to 35 hours.
It’s also worth noting that if you have an employment contract with your firm that stipulates compensation, your firm would need to renegotiate the contract in order to adjust your pay—and you don’t have to agree to that.
Consider whether this is your cue to leave
Nothing says you must accept the pay cut and keep working for this company. If you’ve been unhappy, if you’ve been thinking of moving on, or even actively interviewing elsewhere, this could be the catalyst you need to hand in your resignation. In fact, some experts recommend it.
“Immediately start looking for jobs elsewhere,” says business coach Stacy Caprio. “Don't, of course, broadcast that you're looking to anyone, even your closest co-workers, but find a new job as soon as possible that pays more. A pay cut signifies the company is not doing as well, and it could be a sign your job will disappear completely in the near future.”
That said, you’ll want to take a look at the industry before you jump ship. Is your company the only one that’s flailing, or is everyone in the field having a hard time?
If it’s the industry that’s suffering, you may want to talk to a career counselor or stretch your thinking about what’s a bridge industry,” says Nancy Halpern, an executive coach with KNH Associates in New York City. “It can be a really good time to make sure your resume is in shape, your network is up to date, and meet with a financial advisor if you have one,” she suggests.
If you leave because your company lowered your pay, there’s also a chance you could collect unemployment—but only a chance. “In certain situations, you might be able to collect a portion of it,” Burr says. “It’s going to depend on the state calculation.” Call your local unemployment office for more information.
Taking a pay cut is never ideal, but it doesn’t have to spell career doom. You can use your new salary to negotiate for that work-from-home situation you’ve been wanting, or you can view this as a sign from the universe that it’s time to make a switch. “You may feel this is a great job and you are fine with the cut,” says Stan Kimer, president of Total Engagement Consulting by Kimer. “Or it may be a great time to look elsewhere. Consider if this is a good time to change careers.”
If you're ready to make the move, brush up on interview and negotiations skills, and be sure to update your resume. Need help with that? Join Monster for free today. As a member, you'll get weekly emails filled with expert career advice and job listings in your area. You can also post up to five versions of your resume, depending on the types of jobs you're looking for. Hiring managers are searching for talent on Monster every day.