Toni Ross is the Senior Editor of Betterteam. Her interests include developing resources that help build and grow value-oriented, connected teams, both personal and professional.
A salary reduction letter is a document outlying the conditions for which an employee will have their salary reduced. When a business faces economic challenges due to internal or external factors, employers may be forced to temporarily reduce employee wages to avoid mass layoffs. The template below can be used to create a customized letter.
Download this salary reduction letter in MS Word format, change it to suit your needs, and use it right away.
[Company Name]
[Company address]
[City, ST ZIP Code]
[Date]
Notification of Salary Reduction
Dear [employee name]
I refer to our meeting on [insert date] about whether you would be willing to agree to a salary reduction from [insert amount] per [annum/month/hour] to a new rate of [insert amount] per [annum/month/hour].
As discussed, the company is experiencing a significant downturn in business due to the [state reason]. In response, we are putting in place a [temporary/permanent] reduced pay arrangement to avoid layoffs.
If we do not obtain sufficient employee participation in the salary reduction program, we will have no option but to consider instituting a redundancy program that may result in temporary employee layoffs.
If you are willing to participate in the salary reduction program, please fill in your details below and return this form to [insert name] by [insert date]. If you have any further questions regarding this matter, please contact [insert name and contact details.]
I agree to a [temporary/permanent] reduction in my salary from [insert amount] per [annum/month/hour] to a new rate of [insert amount] per [annum/month/hour] as proposed in the above letter.
A salary reduction is not the same as a salary deduction. A salary reduction is when an employee's salary is reduced by an agreed amount before any applicable state and federal taxes have been deducted. A reduction may occur when a business is instituting cost-cutting measures, when an employee reduces their working hours, or when an employee changes roles.
A salary deduction is a set amount that is deducted from an employee's monthly salary. Some deductions are mandatory such as Social Security tax and federal income tax, while others are voluntary such as retirement plan contributions and health insurance premiums.
A salary reduction agreement is a signed agreement whereby an employee agrees to a reduction in pay.
Yes, a salary reduction is legal, provided the employee agrees to the reduction and the adjusted salary is above minimum wage.
Read about the structure of a layoff letter due to COVID-19 with a free downloadable template for employers.
