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Ask HR: “Can I cut my employees’ wages during the COVID-19 crisis?”

paycutIn the world of human resources, nothing is off-limits. Despite it being pigeonholed as the complaint department, HR is chock-full of tricky and questionable work situations that, if handled poorly, can create potentially costly liabilities for a company.

That’s where simplicityHR’s Ask HR series comes in! From serious to seriously strange, we’re here to simplify all your burning HR questions.

To answer this HR question, we reached out to Michele Kauinui, Director of HR Services at simplicityHR by ALTRES for her expert answer.


Ask HR: “I own a small business with 7 employees and I’m trying to keep my business afloat during the coronavirus pandemic. Can I temporarily cut my employees’ wages to help cover for the loss in revenue?” 


Headshot of Michele Kauinui, simplicityHR Director of HR ServicesMichele: Yes; Hawaii’s Payment of Wages law reserves employers the right to reduce employees’ wages if they are notified in writing or through an accessibly posted notice prior to the effective date of the changes. This is assuming the employees are not covered by a collective bargaining agreement and no other contract of employment applies.

As an alternative to furloughing or laying off employees, reducing wages is a strategy which some businesses consider in order to retain their employees.

As an incentive to keep existing staff during the COVID-19 pandemic, the CARES Act (Overview PDF) will provide businesses that retain employees with $349 billion reserved in forgivable loans and tax breaks under the Paycheck Protection Program (PPP Factsheet PDF). If you lower wages by more than 25 percent, or your full-time employee headcount decreases, the loan forgiveness amount decreases.

[Related: How to Rehire Employees Laid off due to the Coronavirus Pandemic]

Bear in mind that some employees might react to a reduction in wages with resistance, which could negatively impact employee morale. And the National Labor Relations Act reserves employees the right to unrestrictedly discuss their terms and conditions of employment, including pay, amongst each other. For companies that pay the same rate for employees in the same position, it’s important to implement pay changes consistently, unless there’s a business reason not to do so.

Make sure to weigh your options and empathically listen to employees’ concerns. Communicate the necessity of the change for business continuity. Emphasize the fact that the decision was not made lightly and outline the alternatives that you might be faced without pay reductions.

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Disclaimer: This material is provided for informational purposes only. It is not intended to constitute legal advice, and readers should consult with their advisor or counsel before taking any actions based on the information contained within this material.

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