Human Resource Blog

Non-exempt Salary Reduction

Our company took over an internal service force from an organization which wanted to outsource the work to us. As part of the deal we agreed to bring on a percentage of the current personnel for one year and the company would supplement the payroll for us to keep these key personnel around to assure knowledge base transfer went smoothly. At the end of the year the supplemental pay would cease and we would be able to change the personnel’s pay structure to match the requirements of the job of which similarly paid personnel would receive doing the same work. We reviewed these personnel and have changed their salaries without the supplemental wages from the customer based on the job requirements of other personnel in our company. Do we have any legal concerns if these personnel are all non-exempt and we applied the changes fairly across the board?

There are no special concerns regarding this change, but in the post-Ledbetter era, every salary change and especially every salary reduction should be carefully documented. The Ledbetter Fair Pay Act, of course, extended by decades the time frame that employees have to claim illegal discrimination based on wages.

There could be a concern about illegal discrimination if most or all of the affected personnel fell into a protected group. If all of the affected employees were female, while much of your (unaffected) workforce was male, that might be a concern. Or it might be a concern if many of the affected employees were African American, while the unaffected workers were Caucasian (or vice versa.) This could result in charges of illegal discrimination based on sex or race. And even though those claims would be unfounded, it can be expensive to defend against them.

However, keeping detailed records of why the salaries were reduced should prevent any suit from being filed. These records should be in each employees personnel file, as well as in a separate file detailing all the payroll reductions and the reasons behind them. For each affected employee, you will want to identify specific employees within your organization who perform similar jobs, and their salaries to show that the new, lower wage is fair.

It is also helpful to discuss this information to the affected employees, explaining how you arrived at this decision.