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.
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.