How Would You React to a Pay Cut?

Temporary Layoffs, Furloughs, and Pay Cuts oh my!!!

Unfortunately for thousands of workers, these terms are becoming part of their everyday vocabulary.  Chances are you know someone (maybe even yourself) who has experienced one of these dreaded phrases.  So the question is, who would you react to a pay cut?

Imagine a scenario in which you walk into work tomorrow and you are informed that you have to take a 10% pay cut to keep your job.  Now think about a 20% cut.  What would you do?  The answer might not be as easy for you to come up with as you think.

Of course, conventional wisdom will tell you that this is not a good time to be without a job and that you just have to do what you have to do in order to keep you job.  Very true.  Although it would be a major blow to your ego and piggy bank to take a pay cut, at least you will still be employed.  In addition, a wise man (or maybe it was just a fortune cookie) once said, the best time to find a new job is when you already have one.  As a result, you then would accept a lowered salary but immediately add Monster and Career Builder to your Favorite websites.

Are there some circumstances in which you should leave your job if a pay cut occurs?  Absolutely!  I would argue that there are several scenarios in which leaving your job would be the most prudent course. The following are some of the questions that one would have to be able to answer in order to determine whether or not to accept a pay cut.

1.  Do you have a healthy emergency fund?  Could you survive without any income while you look for another job?

2.  Is the company offering a severance package if you leave because of the pay cut?

3. How stable is the company.  Will it be bankrupt in six months?  Will they offer severance packages then?

4.  Can I collect unemployment if I leave my job because of the pay cut?  There is no easy answer for this question, as state laws differ.  The best advice is to call your state’s unemployment office and ask.

5.  Will your workload remain the same if you stay?  I recently heard of a company that slashed salaries by 20% but now only require a 4 day work week.  Certainly, there might be some hidden benefits from a program like that (i.e. lowered gas and child care expenses).

6.  Is there a timetable for these cuts?   Is it a goal of the company to restore rates in the near future?  Are my benefits affected?  All are great questions that you must ask your employer and don’t tolerate any wishy-washy canned HR responses to these questions!!!

Depending on the answers to these questions, you might be better off pulling a Nancy Reagan and just saying no pay cuts.   Still, if you decide to stay, which probably will be the right answer in many cases, you should start preparing for a future in which you will be in a better position to reject a lowered salary.

This post was featured in the Carnival of Personal Finance–World Record Edition