Reducing an employee’s salary? Here is what you must know…

All that an employee works for is the salary. He expects to get a raise or bonus throughout the year. Isn’t it? Clearly, this is why reducing an employee’s salary is one of the most herculean tasks. However, to do so may be very necessary. After constant reminders and support, the time to cut the salary may have come.

Now, note that the salary reduction isn’t limited to making certain changes in the payroll software settings but also about abiding by some rules or just some basic etiquettes. After all, this is going to impact the professional and personal life of an employee.

Let’s dive into the basics first.

Salary reduction-

It is the reduction in the salary (regular amount) of an employee. This may be done due to several reasons.

Reasons to reduce salary-

The primary reasons to reduce the salary of an employee are as follows-

  • You may decrease an employee’s salary because he has wasn’t doing much justice to his job profile because of which the sales may have been declined.
  • It may not be the employee’s fault but that of the company. There may be some financial crisis going on in your company due to which you are not able to pay the employees and decide to cut down the salary of highly paid employees first.
  • You may have resorted to cope with the loss or save money by cutting down the salary of every employee to a certain extent rather than ousting any.

If the salary is reduced because of the financial crisis, the reduction should be revoked when the position is stable. In this scenario, to reduce the risk of losing your gem of employees, you should make them feel how prodigious they are for the company. Besides, you should ask them for their support.

On the other hand, if the salary has been reduced due to demotion or poor performance, elimination of job position, you should get ready to see him getting more demotivated or disengaged. There are also high chances of him searching for a new job.

Basic etiquettes you must follow-

  • Inform them about the pay cut prior to doing so.
  • The pay cut should not turn the salary lower than the minimum wage.
  • There should be a formal communication in writing about the same stating the reason for salary reduction and the date of commencement.

You may have made the required changes in the payroll software but you cannot process the reduced salary amount without informing to that employee. If you will do so, it will be considered as the breach of contract and trust between you and the employee(s).

Also, if there is any employee working with the company on a contractual basis, you cannot reduce his salary. Usually, it is mentioned in the contract that the salary cannot be reduced.

Moreover, if you are reducing the salary on the basis of age, caste, religion or gender, it will be a violation of law.

You can use a payroll software to make the process easier for you. Create the salary reduction letter(s) and have a one-on-one talk with them.

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