Contract Versus At-Will Employees

• When you are hired with a contract, the duration of your employment, as well as your pay rate, is stipulated in the contract. Employers usually can't pay you less than your entry-level salary if you're contracted. However, once the contract ends, your employer is free to negotiate new terms with you, so if he keeps you as an employee, he legally can offer you a lower salary than you had under the original contract.
  
  At-will employees have no contract, so your employer can let you go -- or you can leave -- at any time. When there is no contract, your employer isn't bound to pay you a certain amount later, so he can cut your pay below your entry-level wages if he wants.
  
  

Notification and Refusal

• If your contract expires or you are an at-will employee, your employer is supposed to give you written notice of any changes to your pay. The employer cannot force you to take less than your entry-level pay after you receive notice, but if you refuse, the employer has the right to terminate your employment.
  
  

The Goal Issue

• In some jobs, employers provide additional compensation if you meet certain objectives, such increasing production by a certain amount in a month. As the company's goals and financial situation changes, the employer may offer fewer goal-based perks or none at all. This can translate into a lower overall compensation rate than you had when you started your job, even though your salary technically has not been dropped.
  
  

Drop Limits

• In the instance an employer wants to cut your pay and you agree to the pay change, the employer is limited by federal and state laws in terms of how much he change your compensation. The employer cannot pay you less than the federal minimum wage -- $7.25 as of June 2011 -- and must pay you the greater of the federal or state minimums. If your employer wants to drop your pay below these amounts, you must make enough in tips or other compensation to put pay above the state and federal minimums.
  
  

Bottom Line

• Typically, most employers will not bring you back down to your entry-level salary or less unless your are performing extremely poorly or the company is experiencing severe financial difficulty. You have the right to refuse a pay cut, and it may be to your benefit to find other employment that can keep your salary history high. However, whether you stay will depend on the condition of the economy, as well as your overall relationship with the employer. In some cases, employers drop employee pay because they truly do not want to fire anyone, and when a financial crisis passes, the employer puts pay rates back up. You also may be able to negotiate a better rate than the original cut the employer presents.