How to Handle a Pay Cut

What to do when you get to keep your job but your paycheck is slashed.

By Kate Ashford, Monster contributor

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.

What Is a Pay Cut, Exactly?

A pay cut is a reduction in an employee's salary. Similar to putting workers on furlough, employers may issue company-wide or department-wide pay cuts in order to avoid layoffs and save money during a time of financial hardship. For example, during and after the Covid-19 pandemic, many companies cut salaries in order to save their businesses from collapsing. You can also voluntarily take a pay cut if you accept a job offer that pays less than what you earned in your previous job.

No matter how you explain it, getting paid less is a bummer. But remember that you’re not powerless in this situation. Take these steps to manage your reaction and your future career path.

Pay Cut Action Plan

1. Get the Details

Step one: You need to know more about the how and why of your salary cut. 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 salary 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?

2. Don’t Be Afraid to Negotiate

Your company knows that reducing salaries isn’t the best scenario in terms of employee retention tactics and probably anticipates that some people 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. Inquire about negotiating a retention bonus—a one-time bonus that you get for staying in your job for a set amount of time—that does not affect your future pay. 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.

It’s also worth noting that if you have an employment contract that stipulates compensation, your company would need to renegotiate the contract in order to adjust your pay—and you don’t have to agree to that.

3. Consider Whether This Is Your Cue to Leave

Nothing says you must accept less pay 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.

Start looking for new jobs. No need to tell anyone at your company that you're on the market, but don't delay getting your resume out there. A pay cut could be a warning sign that your current company is not doing as well, and your job might very well 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 consider other industries where your skills are considered transferrable.

If you leave because your company lowered your pay, there’s also a chance you could collect unemployment—but only a chance. Call your local unemployment office for more information.

Find a New Job With a Better Paycheck

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. Need help with that? Make a free profile on Monster. We can connect you to great recruiters, send you custom job alerts, and much more. Hiring managers are searching for talent on Monster every day.

This article is not intended as a substitute for professional legal advice. Always seek the professional advice of an attorney regarding any legal questions you may have.