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Demotion from salary to hourly

I am the owner of a restaurant. With the economic situation that we are in, I need to decrease my payroll. One way that I can do this is to change my salary employees to hourly. However, there are at least 3 employees that I still need to keep on salary. Do I need to have just cause to change the employees to hourly or do I just need to make them aware it is going to be done and give them a short notice of 2 weeks?
Thank you,

Before we address your question, there are a few issues you may want to consider. First of all, a change from salaried to hourly is not necessarily a demotion…it is just a different way of processing payroll. Demotion usually implies a reduction in responsibilities and status. But you do not make any mention of changing these employees duties. Suppose you have a head waitress who is salaried and typically works 32 hours per week. You can certainly leave her hours and responsibilities the same, and simply pay her on an hourly basis rather than as a salaried employee.

Another tactic would be to increase the responsibilities — and hours — of the salaried workers. You could require that the head waitress pick up two additional shifts as waitress each week. This would save payroll because you would be paying hourly employees less.

You say that you have 3 employees you need to leave on salary — presumably because they are working more than 40 hours per week. This may be a wise move — it is unusual for a restaurant to have more than 3 salaried employees. If some employees on salary are working many hours per week, and others are working less than 40 hours per week, that is unfair and possibly poor business management. (It is very common in the restaurant industry for salaried employees to work 50 or more hours per week.)

To answer your question, you do not need any reason to change these employees from salaried to hourly. Saving payroll and restructuring your business to save money are good reasons for this change. The best practice in HR would be to give these employees two full weeks notice. You can reduce their rate of pay at the same time, if you like. Be aware that if the salaried employees decide to quit rather than accept the new working conditions, they may be eligible for unemployment.

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8 Responses to “Demotion from salary to hourly”

  1. Michelle Says:

    Thank you so much for your time! This was very helpful.

  2. Caitlin Says:

    Hi Michelle!
    You are very, very welcome. We are always here to help. Thanks for reading the blogs!~ Caitlin

  3. jean Says:

    My company is planning on changing salaried employees to hourly, from bi-monthly to bi-weekly. They are going to hold back 2 weeks pay. Do they have to give notice? The financial fallout for most of us will be catastrophic since we will only get 1 paycheck that month. Is there a way around this withholding? The company is a large corporation and this is a government contract.

    Thank you,

  4. Caitlin Says:

    Hi jean! This is entirely lawful, and yes the employer should give workers notice that their payroll cycle will change.
    The phrase “hold back 2 weeks pay” is deceptive. Employers don’t really “hold back” anything. They simply pay workers (for example) on the 28th for the payroll period that ended on the 14th. Most companies have the same payroll cycle for exempt and non-exempt employees, so there would be no change.
    If the company really was paying exempt employees on the 28th for the payroll period ending on the 28th, then the employee would have been paid for 2 weeks on the day he or she began work (or shortly thereafter.) An exempt employee who started on the 27 would receive two weeks pay on the 28th. In that case, the exempt employees would already have been paid their salary in advance. HTH, and thanks for reading the blogs!~ Caitlin

  5. jean Says:

    currently I get paid on the 15 and the last day of the month. I am not sure what the bi-weekly Friday date is. The company I work for was purchased by another company and would like us on their pay schedule.

    My last salaried paycheck we be through the last day of august. There would be no further compensation until Approx 25 Sept. I would not be paid on the 11 Sept. that would be the 2 week waiting period.

    Thank you

  6. Caitlin Says:

    Hi jean! Okay, that makes sense. Yes, this is entirely lawful and yes, the employer should let the affected employees know their payroll cycle will change. Some states have a law that non-exempt employees must be paid at least twice per month, but even in those states this type of adjustment is permitted. HTH, and thanks for reading the blogs!~ Caitlin

  7. jean Says:

    I still do not get this, I have read they can only keep 7 days. I will have worked 4 weeks before getting paid for just 2 weeks of that. It does not make sense to me. With electronic payroll and each week having to be approved. There are no such laws in the state of Idaho to reference.

    I remember when I was younger they would hold back one weeks pay due to paper processing. 2 weeks seems excessive. My job requires a secret clearance what happens to that when I can’t pay all my bills.

    thanks for the info, this just does not seem right.

  8. Caitlin Says:

    Hi jean! Again, the employer doesn’t “keep” anything. It simply takes them 7 to 14 days to process payroll. So if the payroll week ends on Sept. 14, employees may not receive checks until Sept. 21. You are correct that with computerized payroll, it could be done quicker…but there is no law that it must be.
    It might help if you ask when the payroll period ends and when checks for that period are received.
    In every state, it is legal to pay hourly workers every two weeks. Sorry we don’t have better news for you. ~ Caitlin

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