Unjust and undignified! These are your thoughts when your employer announces that your salary has been cut. But if the company is struggling financially, then a pay cut is expected.

The only thing you can do now is know your rights and options as an employee. So here are some suggestions on how to handle the situation better and decide on your future career path.

What a pay cut is

A pay cut is a reduction in an employee’s salary. Pay cuts are often implemented to reduce layoffs, when a corporate restructuring is underway and as part of cost-saving initiatives while saving the company money during a difficult economic period.

This decision can be permanent or temporary until the company’s financial status improves.

The outcome could significantly impact a worker’s benefits, bonuses and raises. If you are looking for further details and explanation, ask the following questions:

1. Why is this happening?
2. When will it take effect?
3. How many employees are affected?
4. Will there be more pay cuts in the future?
5. Are benefits going to be cut as well?
6. Are training costs to be cut?
7. Will income be restored once the company’s financial status has improved?
8. What are the company’s long-term plans?
9. Will the workload decrease or remain the same?

How to handle a pay cut

Once you’ve accepted a pay cut, look for ways on how to manage this new shortage of monthly funds.

First and foremost, review your budget. Determine what budget cuts to consider in terms of rental/mortgage, utilities, transportation, food and savings.

Assess if you can still save and invest despite the pay cut. Most of all, find ways to earn more money through freelancing, part-time jobs or contract-based work.

Consider negotiating with your employer

If you’ve opted to remain with the company instead of resigning, you should consider discussing what your company can extend in lieu of your pay cut.

Check your employment contract on whether there is any mention of compensation. Your employer would certainly look into renegotiating your contract and you need to decide whether this is acceptable to you or not.

Consider whether it’s time to look for a new job

If you’ve been thinking of resigning before taking a pay cut, maybe now’s the best time to move on.

Start job-hunting as soon as you can if you haven’t already. This is also a good time to update your resume and reconnect to your network.

Determining your objectives and matching them with your current financial status is the key to financial goal-setting. It’s even more important when you receive a pay cut at short notice.

Consider these six tips:

1. Recognise your goals: These could be saving for a down payment for your new house, setting up funds for the education of your children, paying off unsecured debts, saving for the proverbial rainy day, or putting together a vacation fund.
2. Set up an expenditure plan: Take a serious look at your current income and expenses. Stop any non-essential expenses and search for innovative ways to save your money.
3. Manage the groundwork well: Look into the best ways to earn more money by reading investment guides or search for investment information online.
4. Evaluate your progress on a monthly basis: This will help you ascertain if your financial plan is feasible or not. If you are not happy with the current progress of a specific goal, review your approach and apply any necessary changes in your goal-setting plan.
5. Implement short-term goals: A short-term goal are mainly set to be achieved within a year. The exact time for the short-term goal depends on the date it has to be achieved, the estimated cost and the amount of savings needed for the goal. Examples include family trips, purchasing new furniture, mobile devices, etc.
6. Implement long-term goals: These goals would take at least five years or more to achieve. Saving to buy a house, a car, or to fund your children’s education are some of the prime examples.

This article first appeared in jobstore.com

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