How to Handle a Pay Cut

Taking a pay cut during tough times is never easy, but it doesn’t mean things are completely hopeless. Here are some tips on how to navigate through this.
Jasmine Mun_Writer_gradmalaysia_round
Jasmine Mun
Writer, gradmalaysia
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During tough times such as recessions or economic downturns, even the most responsible of employers may have no choice but to introduce pay cuts to stay afloat. This is never ideal, but that doesn’t mean you’re completely out of options. Read on for some tips on how to properly navigate this difficult situation. 

What Is a Pay Cut and Why Does It Happen?

When business is bad, employers may deploy strategies like pay cuts, recruitment freezes, and staff layoffs as means to cut costs for the survival of the business.

A pay cut is when your employer temporarily reduces your monthly salary. It can mean less income but little to no changes to your workload. How much is being deducted may be determined by internal factors like your job position, the company’s business performance and financial health, or external factors beyond the company’s control (such as a massive economic downturn from a global pandemic).

Most employers can decide to reduce your pay at any time, and they’ll typically specify a period of time or circumstances which necessitate the pay cut. Nevertheless, the implementation of salary cuts needs to follow certain guidelines imposed by the Malaysian Ministry of Human Resources:

Prior Notice: Before a pay cut happens, employers need to give their staff advance notification of the pay cut and obtain employees’ consent on the matter. That being said, immediate pay cuts may be permissible under certain situations, such as an alternative to retrenching employees (being that it’s their last resort).  

Maximum Deduction of Wages: An employer isn't allowed to deduct more than 50 percent of your monthly wage in the month that the pay cut is instituted.

Start by Clearing Your Doubts

It’s important to first gather more information about this decision and how it will affect you. Especially if you choose to remain with your current employer for any number of reasons.

Start by scheduling time to sit down with HR or your supervisor to understand as much as you can about the circumstances surrounding your pay cut. This may help you get more clarity regarding the situation, and give you more key information to make better decisions for your future.

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Settle Your Emotions and Evaluate the Situation Logically

It’s normal to feel anxious and overwhelmed after receiving news of a pay cut, especially if you’re already struggling with financial burdens and student loans. Take some time out to sort through your emotions first, and talk to trusted friends or family members if you need to.

Once your emotions have settled down a little, sit down and objectively evaluate whether the situation is one you’re truly comfortable with. Do you think you are getting a fair deal from this exchange? Is it preferable to remain with your current employer, or do you think you can get a better deal elsewhere? Are you able to withstand the situation for the time being until your salary is fully restored once again?

Remember that your comfort level towards your situation may change over time too. Find time to periodically re-examine your thoughts on the matter as the situation develops. You don’t necessarily have to come to a final decision right away.

Adjust Your Budget or Start Budgeting

 Regardless of whether you choose to remain with your current employer or move on, it’s a good idea to re-plan your monthly budget now that you have a diminished salary. With your adjusted salary, you should calculate exactly how much money will be deposited after taxes and other mandatory deductions. After that, factor in your payments, savings and monthly expenditures. If you’re new to budgeting, consider using budgeting and spending apps to help manage your money. A popular ratio is the 50-20-30 budget rule, where 50 percent of your income goes to necessities, 30 percent to lifestyle choices, and 20 percent to debt and savings.

As you consider how to cut costs, don’t forget to consider your long-term saving goals (i.e. retirement and emergency funds), and think of ways to save at a smaller scale for them.

Seek Extra Income or Financial Aid

If you’re having difficulties covering essential expenses after a pay cut, you should explore additional sources of income or financial aid available in Malaysia.

The Malaysian government has rolled out several programmes to financially aid Malaysian citizens, such as the Special COVID Aid (BKC)PEMULIH 2021, and Bantuan Prihatin Rakyat (BPR) payments. Check out their portals and determine if you’re eligible for the benefits. Take note of their application opening, closing and money distribution dates. It takes some time to set up and verify an account on these government portals, so start that process as soon as you can.

On the other hand, if you have extra time on your hands, you can consider taking up a side hustle to help supplement your income. Setting up a small e-commerce operation, doing freelance work, or joining the gig economy are some of the more popular options. Some of those may qualify for additional government financial aid as well.

That said, keep in mind that a side gig means you’ll need to continue hustling after finishing up your day job. You might even need to fork out some money as starting capital or to promote your services online. Hence, it’s important to factor potential side hustle costs into your monthly budget as well.

Choosing to Move On

If you ultimately decide that you cannot cope with the pay cut and choose to move on and seek another job, that is a valid strategy as well. However, make sure that you have successfully secured employment elsewhere before formally submitting your resignation.

Depending on your relationship with your current employer, you may want to inform them in advance of your plan to resign. A supportive employer may be willing to help you by providing you with references for your job search. Or they may perhaps be more willing to negotiate better terms with you if they truly believe you are an invaluable staff member.

In the end, the final decision hinges on what you are comfortable with and whether or not you believe you are getting a fair deal. Any reasonable employer will understand that, so there is no shame in choosing to make the decision that you believe is best for you.