Your employer can legally reduce your salary as long as it is for a lawful reason. However, your salary cannot fall below minimum wage.
A non-exempt employee’s salary can be reduced as long as it does not fall below California’s minimum wage. Overtime must also not be reduced below 1.5 times the minimum hourly wage.
For example, a non-exempt employee works at a bar with a small staff. In January, the employee is compensated at $1,000 per week for a 40 hour week ($25 per hour.) In July, there is a drop in sales, so the employee only receives $800 per week for a 40 hour week. Because this is $20 an hour and hasn’t fallen below California’s minimum wage, the employee will not have a claim against their employer.
An employer cannot lower an employee’s salary for an unlawful reason or in retaliation for an action which is protected by law. The Equal Pay Act protects the discussion of wages and salaries, asking about an employee’s wage, and disclosing your wage.
For example, the above employee speaks to another employee of a different gender who does the same job and finds that their salary was not reduced, and is significantly higher than the original salary. If this employee talks to their employer about the reduction and the wage gap, it is unlawful for the employer to reduce the employee’s wages for questioning their pay. This would be considered retaliation for a protected action. The employee would also have a claim for the violation of the Equal Pay Act, which prohibits paying employees different amounts for the same work, based on gender.
Employers may reduce an exempt worker’s salary, providing the salary does not fall below the minimum salary for exempt employees. Federal laws require employers with 25 workers or less to pay their exempt workers at least $54,080. For employers with 26 workers or more, their exempt workers must be paid $49,920 or more.
If the salaries for exempt workers fall below those levels, the workers may no longer be considered exempt. The employer will then have to pay wage and hours, overtime pay, meal breaks, and rest breaks as per California laws.
If the salary is reduced because of a reduction in hours, then the worker is no longer considered exempt as their pay is based on hours, not salary. Exempt employees are usually paid on their position and the duties they do rather than the number of hours they work.