A question I’m often asked by employers is whether they can decrease an employee’s rate of pay. This usually comes up after the business has a reason to do so, notifies the employee, and the employee responds that it’s unlawful and they’re going to report the company to the Minnesota Department of Labor and Industry, U.S. Department of Labor, or call an attorney. Despite the angry employee, it is not an unlawful pay practice, so long as the employer and employee do not have a contract for employment that specifically sets forth a rate of pay or other compensation terms.

That being said, there are some potential traps and other considerations. For example, the pay should only be decreased prospectively – in other words, before the hours have been worked and thus, the money earned. For example, if an employee is paid on April 15 for work performed from April 1 to April 14, and you tell the employee on April 10 that their hourly rate of pay is being decreased, the old rate of pay should be used from April 1 through April 10 and the new (lower) rate of pay could be used thereafter. However, from a personnel (employee happiness) perspective, it would be a better practice to make the change effective April 15 for the next payroll, or even the payroll following, in order to give employees plenty of time to juggle their finances if need be. It also would be a good idea to provide the employee with notice of the change in pay in writing that clearly states it is applicable starting on whatever date in the future. Again, make sure that notice is received before any hours are worked under the new pay rate.

Finally, of course it goes without saying, the employee must at least be paid minimum wage at all times – and be sure that you are using the most recent wage whether it be the federal minimum wage, Minnesota minimum wage, or city minimum wage (such as the Minneapolis Minimum Wage Ordinance).