Giving an Employee a Raise Then Taking It Back

Employers can take back raises from at-will employees as long as there is not a contract promising the increase.
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Taking back a raise from an employee may be a necessity when times get hard and profits are down. You may also need to take back a raise if you see a significant decrease in work quality of an employee who was once doing an excellent job. Effective communication is the best way to make your employee aware of your intentions before you initiate the change in order to lessen the blow and so you can have the opportunity to explain.

Following the At-Will Presumption

    All states in the U.S. are functionally at-will employment states with the exception of Montana. According to the National Conference of State Legislatures, at-will means an employer can terminate an employee at any time for any reason. At-will employment also covers salary decreases and demotions. One way to protect yourself against potential problems, such as legal action, is to make sure all employees sign an at-will acknowledgement upon hiring. Some states have added exceptions to the at-will presumption, but it can often be hard for an employer to prove his circumstances fall under one of the exceptions, the NCSL suggests.

Preparing Answers for Common Complaints

    When you give a raise and take it back, you are bound to be met with opposition. Show appreciation for the employee's contributions by detailing ways she benefits the organization. If possible, offer alternative benefits, including leaving early on specific days or offering a gift card for meeting company goals, especially if the employee is someone you really want to retain. Don't feel you are responsible for the employee's personal finances. If she says her pay is too low once you rescind the raise, explain how everyone has had to cut back on expenses and salary increases and how hard you have worked for her. The key is to stay professional and focus on future rewards.

Communicating Your Intentions

    Explain to employees early why and when the company will take the raise back. Don't wait until the employee gets her first check with the deduction before you let her know what is going on. Instead, schedule a meeting as soon as possible. Provide information about the company's pay policies, including the total benefits package, competitors' pay ranges and how the increases are based on the company budget, suggests Business and Legal Resources -- a company that helps businesses with state and federal compliance requirements. Companies that keep their employees informed tend to have higher retention rates.

Potential Legal Issues

    If your company gives raises every year, your employees may feel they are entitled to receive one. This can cause a potential for legal issues. For example, if you take back a raise and it singles out a specific class of employees, the employees may cite discrimination instead of money issues. Higher-positioned employees may also have contract agreements on raises. Make sure you aren't violating any type of collective bargaining agreement or employment contract agreement before you take away the raise. An employment attorney can assist in deciphering the contract language to ensure you are protected from retaliation. Taking back a raise that is covered under a collective bargaining agreement can result in large union fines.

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