When you say "hourly pay cut," I have to assume that all of your employees are non-exempt. So, the answer is that unless you have contracts in place promising to pay an explicit hourly rate for a specified period of time, you can do an across-the-board pay cut instead of implementing a furlough.
The things to consider are to plan carefully and communicate clearly. If you have a budget figure as a target, that will help you to cut pay only to the degree necessary and for only the duration necessary.
If you are on an anniversary-day-in-job pay review plan, you need to take into consideration when workers were given their last annual pay increase so that no one is inadvertently more adversely affected by a pay cut than others. If this would be the case, you may need to calculate the pay cuts on a prorated basis to be most fair.
If you have exempt employees, you must make sure that the pay cut you implement does not take them below the minimums for their exemption classification under the federal Fair Labor Standards Act. If it does, you must change their status accordingly and pay them time and one-half for hours worked over 40 in a week (or eight in a day required by some states).
Question added to topic Human Resources • July 8, 2009
Can I ask my employees to take a temporary hourly pay cut in lieu of furloughs?
I really don't want to force my employees to take time off.
Penny is a seasoned human resources executive and consultant with over 25 years of diverse business experience in advising enterprise leaders on employment-related matters.