Get the Full Story
Goal: Gauge the impact on your job, salary, and benefits.
Your first reaction to news of a pay cut or furlough may be anger at its impact on your paycheck, or even relief that you escaped a layoff. It’s important, though, to get past the emotions and take a close look at what your employer is actually offering so you can plan ahead. When does the pay cut start? How long does your boss think it will last? And how will it affect your benefits?
“Employers rarely make things clear,” says Alan L. Sklover, an employment attorney and popular workplace blogger. “It’s only later that you find out what the ramifications of changes like this really are.” So it’s incumbent on you to ask for the details yourself. Sklover suggests reviewing your company’s current HR policies, and asking your company’s HR department directly about the possible effects of a pay cut or furlough on your benefits.
At many companies, benefits such as health insurance are available only to employees who work more than a certain number of hours a week, typically 30, notes Kirk Nemer, an employment lawyer and president of a Denver-based employment negotiation firm. But the actual number varies by company, so check your company’s HR policy. A host of other perks such as pensions, bonuses, stock options vesting, 401(k) matches, and severance pay are also calculated based on salary, work hours, or both, so a salary cut or work reduction could slash or even eliminate some of these benefits, too.
Know Your Rights
Goal: Make sure your boss is treating you fairly.
Companies instituting pay cuts or furloughs will often make it feel as though you’re “taking one for the team.” With revenues declining steeply, they’ll tell you a pay cut for everyone is fairer than layoffs for a few. As we’re in the midst of a terrible recession, it’s fair to assume that most managers are being honest. But there is always the possibility that a manager could use the recession as an excuse to penalize certain workers unfairly or even illegally.
While there’s not much you can do if your boss’s nephew escapes a pay haircut — personal favoritism is not actually illegal, says Sklover — treating a worker differently because of gender, age, ethnicity, religion, national origin, disability, or pregnancy is illegal. And if you suspect discrimination, you may be able to get justice even if you’re not prepared to file a class-action lawsuit. Before resorting to a lawyer, file a complaint with your company’s human resources department, advises Kirk Nemer. HR is legally obliged to investigate the complaint and forbidden from retaliating against you for making it. Moreover, the courts will not hear discrimination complaints until employees have shown that they have filed a complaint, and that the company failed to act on it.
How do you know you’re being discriminated against? If your boss is dumb enough to spout bigoted remarks, then they could be used as evidence. Otherwise, you’ll have to look for patterns among those who were and weren’t given pay cuts and furloughs, which could be used to help build a discrimination case, according to Sklover.
Big Idea
What About Unemployment Benefits?
Facing a drastic pay cut, you decide you’d rather take your chances on the job market —so you quit. Can you collect unemployment benefits? Workers are generally not entitled to unemployment benefits if they voluntarily resign from a job. But if the modified terms of a job are so different that a “reasonable person” wouldn’t be expected to continue doing it, most states will qualify you for unemployment insurance. What’s tolerable to a “reasonable person” is up to the unemployment insurance examiner, though. A major change in hours, pay, job location, or other working conditions may be enough to fit the bill. And with the job market so weak, Alan Sklover believes that examiners are being more liberal with their coverage decisions.
Try to Negotiate Something in Return
Goal: Seek out some opportunity amidst the crisis.
It’s likely your boss was forced to cut your hours or pay because he or she had little choice. Your boss still wants you to remain loyal, satisfied, and productive, though. So perhaps there is something he or she can do in exchange for your acceptance of this new job situation. A few consolation prizes to seek include a more flexible work schedule, a better job title, more vacation time, or discounts on company products or services. Or you could ask to retain some of the benefits you were set to lose (see Step 1).
Go to your boss first with this request. But if that fails, consider banding together with your colleagues so that your plea carries more heft. And if the idea of collective bargaining makes you uncomfortable, think of it this way: measures that raise productivity and morale are a win-win for managers and employees alike.
Adjust Your Finances
Goal: Marshal your resources to prevent a setback from crippling you.
Pay cuts and furloughs are often presented as temporary measures. But depending on the economy’s course and the company’s fortunes, “temporary” could be a long time. Worse, the cuts could be a harbinger of widespread layoffs. So brace yourself for big changes to your financial situation even as you make smaller adjustments. A few strategies to consider:
- Divide all your expenses into “mandatory” and “discretionary.” Then, reduce your discretionary spending and get an idea of how long you can continue paying your mandatory expenses with your reduced salary.
- Increase your savings cushion to prepare for the possibility of a layoff.
- Establish a home equity line of credit. This can be a source of emergency cash if you need it, but you’ll have to apply while you still have a job. If, on the other hand, you have negative equity in your home, call your lender and try to negotiate a loan modification before a further financial setback lands you in foreclosure, suggests Kathleen Campbell, a financial adviser based in Fort Myers, Florida.
- Maintain your access to credit. Make sure you occasionally use each of your credit cards so they don’t get closed due to inactivity. But pay the balance in full!
- To make up for your lost spending power, take advantage of every last benefit your employer offers, such as transit reimbursements, flexible spending accounts for health or childcare, and company-sponsored discounts.
Beyond these steps, you should also make sure you’re cultivating your personal network for job leads, and also looking into possible consulting opportunities in case your pay cut signals more drastic measures like layoffs. Proper planning can help you make the best of this painful situation.
