Should You Take A Pay Cut?
The statement “make sacrifices today for the greater good” can be controversial; so is taking a pay cut at work. What do you do when you are faced with choosing between taking a salary cut or losing your job? What should an individual do when asked to take a pay cut at work? How would you know if taking a pay cut will be harmful or beneficial? Should taking a pay cut to be your last resolve? Well, taking a pay cut isn’t financial suicide; it may even lead to career success and financial stability. It may even be the beginning of your ascension to greatness.
However, you need to put some things into consideration before taking a pay cut. For example, make sure that you have a side business or are making moves for career advancement before taking a pay cut. You shouldn’t commit financial perversity by taking a pay cut because your employer or organization asked you to; assess and evaluate the merits and demerits of taking such a pay cut before making a decision. When the situation of taking a pay cut arises, try and strike a balance between your personal and the organization’s good.
In some cases, taking a pay cut may be a trajectory to progress in your career. For instance, you are a sales assistant in a retail company; then, you interviewed for an assistant manager’s role at an IT firm and were successful. You were asked to take a pay cut since you are working in the IT sector for the first time. As someone with a qualification in computer and IT, it is advisable to take the pay cut because, in a year or two, you are likely to earn double of what you were earning in the retail company.
Remember, an organization or employer will not intentionally want to cut your salary or pay; certain factors and conditions might necessitate employees or workers to take pay cuts. Establishing the criteria for taking a pay cut is very important. Sometimes, the company may experience a downfall in revenue and production and may ask its employees to take pay cuts for the time being; whilst ensuring that other benefits and compensation packages remain intact. Hence, this article will discuss the meaning of a pay cut, provide tips on how to prepare for a pay cut, and discuss when employees and workers should decide to take a pay cut.
What is a pay cut?
A pay cut is a decrease in an employee’s compensation. It could be a reduction in salary, benefits, hours, and more. A pay cut is an official action taken by the company or employer and usually results in a decrease in salary or compensation. Several factors can make employers ask their workers to take a pay cut. However, most organizations or employers leave the decision of taking pay cuts to the employees. Such workers have the leverage of either accepting or rejecting the pay cut. There are financial risks and pitfalls attached to taking a pay cut; this is because it results in a drop or reduction in pay or salary and may affect other benefits as well.
How to Prepare for a Pay Cut
It is important to prepare or plan for a pay cut; with the growing economic uncertainty, it is vital to put the impacts of a pay cut into consideration. Your ability to know how to offset the cut matters as well. Arguably, determining the short and long-term effects and rewards of taking a pay cut is the first step in the process. Thus, have a look at your financial situation and plan. Below are tips to consider on how to prepare for a pay cut;
Study jobs in the industry: Do your homework on jobs in the sector or industry and determine the salary scale or structure based on location. Then, find out what other workers earn in the same position or role; this will give you better-negotiating powers.
Examine personal finances: Determine where you can reduce your expenditure to cover up for pay cuts. Examine the current state of your finances; find out where your money goes monthly and make changes where needed.
Draft your budget wisely: A budget can help you curb overspending and save more. Therefore, draft a realistic and prudent budget, allocate funds appropriately, and spend wisely. Preferably, create an avenue to save funds daily, weekly, or monthly.
Set your priorities: Try and allocate your resources better by setting priorities. When you set priorities, you ensure that both short and long-term expenses are covered; this can help to offset the impact of a pay cut.
Mind your credit: Be sure to continue paying bills on time. Although a pay cut won’t impact your credit score, late payments invariably can. Figure these payments into your budget and do your best to make scheduled payments.
Save as much as you can: Keep saving money even if you have accumulated enough to cover your expenses. While you are making adjustments to the pay cut, try and contribute to savings regularly.
When to Consider Taking a Pay Cut
Pay cuts are a financial risk weighed against the emotional or psychological rewards of the change. Below are the situations that should make you take a pay cut;
- The job will be challenging and exciting
- The job comes with invaluable experience
- Career change and progression
- Striking a balance between work and life
- Savings balances pay loss
- Entrepreneurship and starting a business
- Leaving a bad company culture
- You want to stay employed
The job will be challenging and exciting: Perhaps you have reached a plateau in your current job and a new opportunity promises career development, excitement, and purposeful work. Although the new job comes with a pay cut, the chance to perform meaningful work means more. The new job may offer recognition for your work so it feels like your contribution makes a difference.
The job comes with invaluable experience: Another situation that should make you take a pay cut is if the job offers opportunities for you to grow your professional network and mentorship. Such jobs can enable you to get more experience, develop new skills, and enhance your career.
Career change and progression: Switching from one career to another can be daunting; however, many skills can be transferred from one field to the other. Therefore, weigh the pay cut, its potential impact, and your long-term career progression and make a choice. Moreover, with invaluable experience, hard work, and work output, you may get promoted faster; this can result in raises or salary increases.
Striking a balance between work and life: If having a better work-life balance is something you crave or you want flexible hours, it might be worth a pay cut. It all depends on your needs. Life events or personal changes can offer perspective when work and life are out of balance. Your current job may be too demanding and may offer little to no time for family. Another job may be less so but with less pay; if you prioritize striking a balance, you may need to take a pay cut and go for the new job.
Savings balances pay loss: A pay cut is sometimes balanced by the savings associated with the new job such as food, gas, transportation, clothing, and accommodation. The new job offers accommodation or is closer to home; so you save gas and other transportation costs. Relatively, the organization’s benefits are double what they are at your current job. Although the salary or pay cut may seem large at first glance, factoring costs and benefits with savings offset the reduction in pay.
Entrepreneurship and starting a new business: Arguably, the need to take a pay cut is more common when employees and workers want to venture into entrepreneurship. When you want to start your own business, you may need flexible hours and fewer responsibilities. This may require a pay cut because you would be spending less time at work. Although you will lose finances by taking the pay cut, the benefits and gains of starting and owning your own business can help to offset the losses.
Leaving a bad company culture: The saying “love what you do and you will never work a day in your life” cannot be overemphasized; if you dread going to work every day because you hate the environment or culture, finding an organization with a better culture would be a breath of fresh air and might be worth the pay cut.
You want to stay employed: Sometimes, it is better to be paid less than not all. Pay cuts are not ideal, but many see them as the lesser evil during tough times when organizations and employers are faced with the unenviable choice of reducing wages or letting employees go.
Taking a pay cut is not a light decision to make. There are a lot of things to consider; make sure you can financially take a lower salary. Otherwise, you will just be transferring your stress to stressing about finances. You may need to be willing to adjust or change your lifestyle for a lower-paying job that will make you happier. Hence, ensure that you weigh all the available options before making the decision of taking a pay cut or not.