Can a Employer Decrease Your Salary for a Poor Evaluation?
- The answer to questions about wage reductions--based on any reason--when an employee's salary is at minimum wage is clear. Employers are prohibited from paying employees less than minimum wage, unless the job is one in which employers are permitted to compensate employees at a rate lower than the minimum wage by the Fair Labor Standards Act. In addition, salaried employees' wages cannot be reduced below the weekly $455 threshold or the employer risks losing the exempt classification for those workers.
- Employees who are subject to salary reductions based on a poor evaluation should agree to this arrangement before they accept the job. Although it's not illegal to reduce someone's salary due to poor performance, it's an exceptionally poor way to handle performance issues. If you expect salaried employees to maintain outstanding ratings in all areas of their job performance and you reduce the salary of any employee who doesn't meet this criteria, you must discuss this with candidates to whom you make job offers. It is inherently unfair to surprise an employee with a salary reduction based on a poor evaluation.
- Reducing an employee's salary based on poor performance will likely do nothing to improve performance. In fact, a performance-based salary reduction may have the unintended consequence of even worse performance due to low morale. HR best practices generally advise against employer actions that punish employees because it intimates an adult-to-child relationship rather than an adult-to-adult working relationship. If the employer's intent is to punish employees who don't meet performance standards, a more acceptable solution is for the employer to provide remedial training or put the employee on a performance improvement plan that requires immediate improvement. An appropriate consequence of failing to improve as a result of the performance improvement plan would be job loss.
- Some employees and human resources practitioners may confuse a performance-based pay system with the practice of cutting salaries due to poor performance. A performance-based pay system is effective and appropriate when it's a proactive measure companies use for motivating employees to achieve high performance ratings. Using salary reductions for poor performance is an ineffective, reactive measure that doesn't change the root problem, which is performance.