Five Considerations Before Reducing Employee Compensation

There may come a time where your business needs to reduce employee compensation in an effort to stay in business.  Below are five important considerations before doing so:

1. Consider making cuts across the board, as opposed to only select employees or jobs. In the latter scenario, you run the risk of exposing your business to discrimination claims (intentional or disparate impact).
2. Similarly, and for the same reasons, consider decreasing compensation by the same percentage (i.e., 4%) across the board.
3. If you’re reducing the compensation of a non-exempt (overtime eligible) employee, ensure that the reduction does not take them below the minimum wage. Currently, the minimum wage rates are:

• • NYC: $15/hour
  • Long Island & Westchester: $13/hour
  • Remainder of New York State: $11.80/hour
  • New Jersey: $11/hour

4. If you’re reducing the compensation of an exempt employee, ensure that the reduction does not take them below the minimum salary level required for exempt status. Currently, the minimum salaries are:

• • NYC: $1,125/week
  • Long Island & Westchester: $975/week
  • Remainder of New York State: $885/week
  • New Jersey: $684/week

5. If you do reduce an employee’s pay, be sure to provide them with the appropriate Notice of Pay Rate before reducing pay. In New York, a specific form must be provided (available here).  In New Jersey, no particular form of notice is required.