When Your Employer Cuts Your Pay or Hours: Steps for Getting By

When your employer cuts your pay, how do you cope? You take these steps to trim expenses, find other sources of income and stay away from those credit cards.

Dear Gary,
My boss just announced that we’ll have to take a 10% pay cut or lay off some people. I’m glad they’re not doing a layoff, but how am I supposed to pay my bills when I’m taking a 10% pay cut? My boss hopes that it’s temporary, but he doesn’t know when it’ll end. How do I adjust my budget to a temporary cut in income?
Jeremiah

Ouch! Taking a 10% cut in pay is hard, but the fact that the company chose to cut pay instead of lay people off is a positive sign that they think the business will revive.

Let’s see what we can do to help you get through when your boss cuts your pay or hours.

Cut Your Spending: Painful but Necessary

The obvious easy answer is to cut your spending by 10%. That’s easier said than done, especially if you’ve been dealing with higher prices.

Expect some of the budget reductions to hurt. You’ll be forced to cut some things you don’t want to cut, but if you can accept that fact at the beginning, the whole process will be easier.

Accept, too, that you’ll be tempted to use credit cards to make up the difference. Only do it as a last resort when all other options have been done. You’ll only be postponing the inevitable and making the situation worse.

Create and Stick to a Budget

Hopefully, you already have a budget or spending plan to tell you where your money is being spent today. If you don’t, you’ll need to review your bank accounts and statements to know what’s happening.

You can target a percentage of your spending or a specific dollar amount. I’d suggest you aim for a dollar amount to cut each month or each pay period. There’s less math involved without the percentages.

Cutting every budget category by 10% is the most straightforward approach, but it could be difficult. Some categories, like food, are easier to adjust because you make a lot of purchasing decisions and have plenty of opportunities to save.

Trim Big Budget Items First

Others, like housing, are more difficult. Sure, you can work on your utility bills, but even if you cut your utility bill to zero, you probably wouldn’t save 10 percent of your total housing bill.

A better approach would be to see where you can make significant savings with a single action. Unfortunately, with today’s high interest rates, it’s probably not a good time to refinance the house, but you should check all your insurance. If you’re fortunate, you could make a step towards your goal here.

Then Reduce Significant Budget Categories

Once you’ve covered the big items, we’ll go to the most significant categories. The biggest expenses are home, auto, and food for most families. Between them, they generally consume between 65% to 75% of our take-home pay.

We don’t have the space to get into details on saving in those categories, but you’ll find plenty of resources online to help you reduce those expenses.

Finally, Look at Small Budget Items

Next, look at some of the smaller categories. Consider things like entertainment and clothing. Perhaps you can cut way back or eliminate them until the furlough is over.

Remember that you’re taking the necessary steps. You’re not just taking the easy ones.

Increase Income in Other Ways

After cutting your spending to the bone, look for ways to increase your income. (See Side Gigs That Can Make You Extra Cash.)

Are there ways that you can earn money on your forced days off? Use the opportunity to turn a hobby into a small home business, or you might be able to find part-time work on that day. Some work-at-home opportunities might fill the time productively.

Even if you can’t find a way to make money, don’t waste the furlough days. Use the time to look for a new job, increase your job skills, or volunteer at a non-profit. Those activities don’t provide an immediate benefit, but they could help build your network and open opportunities later.

It Isn’t Easy When Your Boss Cuts Your Pay or Hours

Unfortunately, there aren’t any easy ways to adjust when your pay is cut. Most of us have already cut the fat from our budgets. Now, anything we cut will be difficult, but if you were looking for a silver lining, the fact that your employer chose to cut pay rather than laying people off is a good sign that they think the cut is temporary.

Let’s hope that’s the case.

Related:

• When You’re Unemployed and Getting Behind on Bills
• Side Gigs That Can Make You Extra Cash
• Black Belt Tightwads Share Their Money-Saving Secrets
• The Many Ways You Can Make an Extra Income
• 5 Simple Budget Cuts That Can Save $200 a Month

Reviewed November 2023

About the Author

Gary Foreman is the former owner and editor of The Dollar Stretcher. He's the author of How to Conquer Debt No Matter How Much You Have and has been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.