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Dear Workforce How Far Can I Cut Salaries Is Furloughing An Option

My company needs to cut costs immediately, but would rather not fire any employees. Cutting salaries is an option and so is furloughing. How far can I really cut salaries and how does furloughing affect employee benefits?
January 8, 2003
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Related Topics: Compensation Design and Communication, Dear Workforce, Compensation
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Dear Seeking Options:
Companies are not required by law to offer medical and dental benefits, so company benefits may be able to be cut to any degree without legal implications. Other cost-savings options are reducing vacation time, sick time, and asking employees to contribute up to 50 percent of the benefits costs.
If base salary is cut, there may be legal ramifications to the employees. For example, offer letters are required by law some states. Therefore, what was stated in the offer letter and how it was stated could have an impact on how a company handles a reduction in salary to existing employees.
One consideration may be a variable pay plan. Variable pay holds employees accountable for contributing to the company's profit and/or revenue drivers, and if financial expectations aren't met, the employee's pay is reduced until a time when the company's financials reach the levels required to support existing headcount.
I would suggest checking with your state department of labor to determine if it supports a "shared work program" as an alternative to layoffs.
SOURCE: Beth Casey, director of human resources, Advantage Human Resourcing, South Norwalk, Connecticut, June 27, 2002.
LEARN MORE: Read Value is the Goal to learn why some experts believe variable pay is the most appropriate form of compensating employees.
The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.
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 The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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