It’s a phrase that makes you feel bummed and disappointed… “pay cuts.” No one wants to think about having less money or benefits, but how much do we really know about why pay cuts happen? Here are some of the types of pay cuts and what they mean:

  1. Benefit Cuts– Sometimes, a company will decide to cut benefits to avoid wage cuts, but sometimes benefit cuts are added to wage cuts. Benefit cuts could be anything from health insurance, vacation time, PTO, and/or reimbursements.
  2. Bonus/Raise Cuts-Bonuses and raises are usually the first cuts made when a company is trying to reduce spending. According to the law, a company requires neither bonuses nor raises, but good companies recognize their employees and reward them. But even the good companies have to make cuts, and the “extra” is the first to go.
  3. Reduced Hours/Mandatory Furlough-If you are an hourly worker, a company may cut your hours to save money. Your pay will stay the same, but you will receive less money each week because of the decrease in hours. If hours aren’t cut, the company may put employees on mandatory furlough. This means you will not be working or be paid, but you are still employed at the company when the furlough ends.
  4. Wage Cuts-Wage cuts are when a company decreases your hourly or salary pay. There are laws to protect you from going below a state and federal minimum wage and/or receiving overtime pay.

Pay Cuts aren’t something we celebrate, but we also don’t have to fear them. Usually, companies will balance out and have order restored. Worst case scenario, you move to a company in better standing with less chance of having money problems. Make sure you don’t rely on your bonus, PTO, and current pay. Keep a safety net in between if you can, and you’ll be prepared for anything!