Among the most difficult decisions employers have to make is setting pay scales; however, cutting employees' wages is an even more difficult decision, especially when it means employee paychecks are about to become smaller. Communication is key in any type of employment action, but even more so where an employee's pay is concerned. Texas knows that and tells employers to let their employees know when they need to lower wages.
The Fair Labor Standards Act prohibits employers from reducing the wages of employees to an amount lower than the minimum hourly wage or an amount that falls below the $455 weekly minimum wage for salaried employees. However, Texas also has specific guidelines for employers intending to reduce their employees' wages. In addition to upholding federal law regarding the minimum wage and salary amounts, Texas employers are strongly advised to notify employees before lowering their wages.
When an employer must reduce wages -- for any reason -- the most effective way to handle the reduction is through communicating with employees and ensuring that employee concerns and questions are fully addressed in a timely manner. Employers should give employees notice far enough in advance to enable employees to decide if they want to stay with the company or look for employment elsewhere.
Texas Pay Agreements
According to the Pay Agreements laws enforced by the Texas Workforce Commission, employees must receive prior notice of pay reductions. The Commission states: "Notice of any changes in the pay rate should always be in writing, for the company's own protection, in order to minimize disputes over the rate of pay." One reason why employees should receive prior notice is because it affects whether the employee wants to continue working for the company and take the pay cut or look for another job. Texas strengthens its position on notification of pay cuts, in particular, when employers cut wages by 20 percent or more.
Texas Labor Code
The Texas Labor Code does not specifically address wage reduction or lowering wages; however, Chapter 61.018 of the Labor Code specifically states: "An employer may not withhold or divert any part of an employee's wages unless the employer ... has written authorization from the employee to deduct part of the wages for a lawful purpose." This means an employer would first need to notify employees of the intent to deduct any amount from their wages. This mirrors the Texas Pay Agreements law about reducing employees' wages. In short, employers should provide employees with advance notice about all pay matters.
Texas State Workers
There are provisions for Texas public-sector employees whose wages are reduced due to poor performance. State of Texas employees are subject to a disciplinary reduction of wages, based on poor performance. However, the reduction can't go below a certain salary level for the employee's job group, and employees are aware that low performance ratings can have an effect on their salaries.