Millions of Americans have been laid off from their jobs as a result of the current health crisis, COVID-19, and many more are worried that their jobs could be in jeopardy. When it comes to compensation, more is always better, but if the options are taking a pay cut or losing your job, the choice might be clear.
Even under normal circumstances, taking a pay cut might not be the worst thing that could happen to you. For a more detailed look at how often employees take pay cuts and the silver lining they can expect, The Interview Guys surveyed over 1,800 people.
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Pay Decrease Circumstances
If you’ve ever been asked to take a reduction in compensation, you aren’t alone. More than half of Americans (53%) have taken a pay cut at least once in their careers. For most (58%), taking a pay cut wasn’t a voluntary decision, although more than 2 in 5 people who accepted a lower salary or hourly rate did so by choice.
In most cases, having (or being asked) to take a pay cut is a one-time experience. Forty-eight percent of Americans who took a pay cut only did so once, followed by less than 33% who’d taken a pay cut twice in their careers. The average pay cut was nearly 15%, equating to roughly $6,500 on a median annual salary of $43,584.
When pay cuts are voluntary, employees are more likely to see the request coming. Compared to 28% of employees who weren’t given a choice, just 14% of those who volunteered to lower their compensation were not at all prepared for the cut.
If you’ve been asked to take a pay cut, the decision shouldn’t come lightly. On average, employees reported needing 15 months to get back to their original salary. And those taking an involuntary pay cut had a better chance of getting back to their original salaries (63%) compared to employees who volunteered to decrease their compensation (almost 59%).
Why You Might Have to Take a Pay Cut
Company budget cuts or financial problems were the most common reason (32%) employees were asked or forced to take a pay cut, followed by career changes (28%) and wanting different hours (nearly 22%).
In some cases, though, sacrificing compensation can have a positive impact on life outside the office. One in 5 employees took a pay cut to have a better work-life balance, and nearly 1 in 7 took a pay cut to escape a toxic work environment. While women were more likely to take a pay cut to get out of a toxic workplace, men were more likely to take a pay cut to start a business.
Is a Pay Cut a Good Idea?
Regardless of whether they had a choice in the matter, a majority of Americans believed they were in a better career position after they took a pay cut. Including almost 56% of employees who were forced into lower compensation and 77% of employees who opted for a pay cut, most indicated positive sentiment after their pay was reduced.
A better career path doesn’t always mean better finances, though. While 57% of those who took a voluntary pay cut indicated being in a better financial position afterward, nearly 52% of those who were forced into taking a pay cut indicated their finances were worse.
Reducing your income will probably never be something to get excited about, but under the right circumstances, the long-term impacts can be positive. Getting back to your previous compensation won’t happen overnight, but you’ll likely feel better about your career, especially if the pay cut leads to a better work-life balance or starting your own business.