Skip to Content
Tally logo

How to Handle a Pay Cut

A salary reduction is less than ideal, but there may be situations when a pay cut is okay. Find out how to handle a pay cut, and when it may be okay to do so.

October 29, 2021

When it comes to climbing the career ladder, one of the common ways to measure your progress is through salary and benefits. As you gain experience, your salary expectations may rise. But what happens if the opposite happens and you’re forced to deal with a salary reduction? 

A pay cut is less than ideal, but there are situations where it may be appropriate. This guide will discuss how to handle a pay cut and when it’s okay to consider one.

Broadly speaking, there are a few situations where a pay cut may be acceptable:

  • Changing industries to a career you have less experience in

  • Switching to a position you believe will make you happier, less stressed or more satisfied 

  • Moving to a lower cost of living area and your potential savings outweigh the salary reduction

Of course, life isn’t one-size-fits-all. There may be other situations in which taking a pay cut is appropriate, but these three categories are the most common. Let’s break them down in more detail. 

Changing industries

If you take a new job in an industry you have little to no experience in, chances are you might need to take a pay cut. 

For instance, if your background is in sales and you decide to pursue a new career in accounting, you’ll probably start at a lower-tier position. You’ll have the opportunity to work your way up, but expecting to stay at your current salary level might not be realistic.

With that said, it isn’t necessary to settle for starting from scratch either. If you have ten years of professional experience, you wouldn’t want to accept an entry-level salary that’s more appropriate for a recent college graduate.

Switching to a “better” job

If you’re making a switch to a new position within your industry, you’ll typically want to stay at a similar salary level or get a raise. However, it’s worthwhile to consider the non-financial aspects of a new job: 

  • If the new position is likely to reduce your stress level, improve your work satisfaction or challenge you to become better at your craft, considering a pay cut may be worthwhile. For instance, if you’ve worked a high-stress job with long hours and you’ve been well compensated for it, you may benefit from a pay cut that comes with far fewer hours and less stress. 

  • If you’ve worked in a profit-driven industry but feel dissatisfied, you may benefit from working for a nonprofit organization, even at a substantially lower salary level.

Ultimately, life satisfaction is about much more than just money. Consider the complete picture when contemplating a career change. 

Relocating to a cheaper area

You may consider a pay cut in a situation where you’ll save a substantial amount of money by switching to a new job. In most cases, this means moving to an area with a lower cost of living that may also reduce your commute time.

For example, if you’re living in an expensive city and making $80,000 per year, a similar position in a suburb or small city may pay just $60,000. But if your savings on housing, transport, utilities, etc. add up to around $20,000 per year, the net financial result will be similar at both positions. 

Using a cost of living comparison tool like BestPlaces or Numbeo can help you estimate the impact of living in a cheaper area. 

Should I take a pay cut at my current job?

In most cases, it’s not financially savvy to accept a pay cut at your current position. If your employer insists on a pay cut, it may be time to seek new opportunities at another company. 

That said, there are some exceptions: 

  • The business is at risk of closing and salaries must be reduced to stay afloat

  • Your hours are being cut or responsibilities are being substantially reduced

  • The economy is in a severe downturn or recession

Can an employer cut your pay for reasons other than those listed above? Unfortunately, yes. 

However, in order for it to happen, they must give you advanced notice and you must formally accept the salary adjustment. Your employer is also required to pay your previous salary for work that has already been completed. 

However, an employer can only lower your wages going forward — wage cuts cannot be retroactive. An employer cannot pay you a lower rate for any hours you have already worked. 

Additionally, your new rate of pay cannot be lower than minimum wage in your state, or the federal minimum wage ($7.25 per hour) as set by the Fair Labor Standards Act (FSLA). 

Each state has their own labor laws regarding salary reduction notifications. Some states require written notice, while others allow immediate reductions — but again, any hours already worked before the change must be paid at the previous hourly rate or salary rate.

Can I be forced to take a pay cut?

If your employer cuts your salary, you can either accept it or leave the position. Bosses are as free to lower salaries as they are to raise them. They’re required to give you notice, although the length of this notice varies by state. 

There are some situations in which a pay cut may be illegal, including if:

  • The pay cut is discriminatory

  • You have a written contract or union contract with the employer which establishes your salary level

  • The pay cut drops your salary below the minimum wage in your state

  • There is no advanced pay cut notification

If you believe your employer is cutting your pay illegally, consider contacting a legal professional for guidance. 

How to handle a pay cut

If you decide to accept a pay cut, there are a few things you can do to prepare. 

Know your worth

Ensure your new position will be paying at least a fair wage based on market averages. Sites like or Glassdoor can help you gauge the typical salaries for similar positions. 

Assess financial impact

A pay cut will affect your finances in one way or another, but the extent to which your financial wellness will be affected depends on the size of the pay cut. Consult your budget to determine how your new salary may affect your lifestyle and savings. 

Assess “life” impact

Money isn’t everything. It’s wise to also take into account the potential life impacts of a job change. Will your commute be shorter or longer? Will you have more or less workplace stress? Considering the complete picture can help you prepare for a pay cut.  


Taking a pay cut may put you in a good position to negotiate, particularly when it comes to benefits. An employer might be able to offer non-salary perks, like better health insurance or the ability to work from home. 

Consider the bigger financial picture 

A pay cut or job change can be a solid opportunity to step back and assess your overall financial health: 

If debt payoff is on your financial to-do list, you can check out Tally†. Tally is a powerful personal finance app that’s helping Americans pay down their credit card debt.  

​​†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.