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Reduced Salary Is Legal When Done Properly

On Behalf of | Jun 10, 2015 | Employment Law

Small startup companies often have a situation where they may have cash flow problems and need to reduce pay of their salaried executives until the finances get better. Under New Hampshire law, RSA 275:43-b(I) a salaried employee is to receive full salary for any pay period in which the employee performs any work without regard of the number of days worked with certain exceptions. This does not mean that salaried employees’ wages can never be reduced. The key is to provide notice to the employee of the change in the salary prior to the pay period upon which this salary reduction applies. Under New Hampshire law, any paid compensation changes must be in writing, yet, if it is proven that the employee did get notice of the reduction in salary before the pay period, even though it was not in writing, the reduction may still be legal. Nevertheless the law requires written notice and a written notice provides much better proof if later challenged by a disgruntled employee.

The company should also clarify in writing whether or not the salary reduction is intended to be a deferral of the unpaid portion of the salary and if so under what financial criteria will the deferred salary be paid. Once that financial criteria is met, that deferred salary is now wages due under the law. However, if the company intended to reduce the salary for a certain period and not to pay the difference in the future, so long as it gave clear written notice of that reduction before the pay period, then that unpaid salary should not be determined owed to the employee if he filed a wage claim before the New Hampshire Department of Labor. If a company decides to reduce the hours of a salaried executive and correspondingly cut his/her salary, it would be very prudent to provide the executive written notice that he/she signs of the change in the work schedule and the change in the weekly salary so that the salaried executive who would otherwise be exempt from overtime pay of time and a half is not later considered subject to overtime payments once business picks up and that executive starts working well over 40 hours a week.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].