Tuesday, October 20, 2009

Wage Freeze & Reduction in Benefits

A reader just commented on my previous post, by asking, "John, what about a wage freeze or benefit cuts? We are seeing again this year a double digit increase in health and pay 75% of that cost. I am looking at not keeping during our slow time, one employee and cutting back to 35 hours the rest of my staff or giving raises to spring or summer."

I believe that either one or both of the first two alternatives (a pay freeze or cut in benefits) are preferable to a reduction in salary. I see nothing wrong whatsoever with freezing wages until some time in 2010. As for cutting benefits, such as selecting a new health insurance program with higher deductibles, I have no major problem with that approach either.

However, I disagree with the "cutting back to 35 hours" because once again you are asking everyone to suffer by instituting a 12% cut in their salaries. Sure, cutting hours back to 35 is better than a reduction in hourly pay, but the net result is the same, a reduction in take-home pay.

Sure, the employees are working fewer hours, but just as important, if not more so, is the fact that their real-world take-home pay is being reduced as well. Most employees live from week to week and paycheck to paycheck and in this scenario everyone will feel the pain.

A better solution (in my opinion) is to terminate one employee as opposed to reducing the take-home pay of all employees. Granted these decisions are not easy to make. Terminating an employee is much more painful for both the employer and the employee who is terminated.

Then again, no one ever said running a small business is supposed to be easy.

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2 Comments:

Blogger BeckyW said...

For awhile we tried to keep our small team together and "spread the suffering" but long term that just doesn't work. We would have been better off making the cut back in May. Although it was difficult for everyone to lose a team member we all liked and enjoyed working with, the remaining employees understood.

October 21, 2009 at 2:35 PM  
Blogger Compton Design & Printing said...

My employees are aware of the current economic crisis and the financial condition of the shop. Actually, it was an employee who came to me, after haven spoken to another employee who agreed, and asked that wages be reduced. That was half my workforce. Their thought was that it would be better to have a job at a lower wage than to have no job at all.

October 22, 2009 at 2:30 PM  

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