Financial Planning / Speaking Out

Should You Take A Salary Cut? When Is It Okay?

. 7 min read . Written by Priyanka Sutaria
Should You Take A Salary Cut? When Is It Okay?

Is there any situation in which a salary cut is acceptable? We’ve made a list of 4 situations where it may not be okay, but may definitely be required!

The biggest financial overhaul of our generation is has occurred over the last one year. In the aftermath of a deteriorated global economy, a reduced salary seems like an additional burden; one which most cannot afford, and few can contend with.

Migrant workers have been displaced, and artisans who keep our centuries-long culture alive are struggling to make ends meet. India’s richest individuals have seen their net worths plummet, and there have been more pink slips issued than ever before.

But despite these unfortunate (and frankly terrifying) circumstances, salary cuts are not a new thing.

So beyond conversations of demotions and downsizing, when is it okay to take a salary cut in your stride?

When You Are The Leader Of A Nation In Crisis

In dealing with something as uncontrollable as a pandemic, those in power have made several missteps along the way.

One decision which has not been a misstep is the unanimous decision for the top brass of the country to take salary cuts.

It was announced last week that the President, Vice-President, Prime Minister, and all Members of Parliament would be taking a 30% pay cut for a year. These funds are to be redirected to the Consolidated Fund of India

Essentially, the Consolidated Fund accounts for the revenues received by the government, as well as the expenses incurred by it. It is, by and large, the most important bank account of the country.

So why have the funds been redirected to the Consolidated Fund rather than the Prime Minister’s National Relief Fund?

a woman state leader speaks
Image for representational purposes only. No political affiliation intended.

The National Relief Fund is supposed to be self-sufficient, and if in case it is not, then the other relief funds set up (to which thousands of private citizens have made donations), ought to cover any unpredictable fallouts.

Bolstering the Consolidated Fund is a move to secure the finances of the nation in the long-term. By ensuring that there will be funds for government expenditure in the future, in tandem with the salary cuts, the imminent costs of governance will be reduced.

When You Are A Compassionate Company

Any profit-based company has to take difficult decisions when faced with losses—whether they are faced with a slowdown of business, or a fallout of the economy.

In researching this article, I had the opportunity to speak with Aparna*, a senior-level executive at an international retail company.

She told me that the executive board of the organisation has taken a number of decisions in order to cope with the current situation:

First, the entire board, as well as a number of senior managers in her company, have taken pay cuts. These slashes in salary are staggered, so the higher up you are in the food chain, the larger the percentage of your cut.

Secondly, as of now, all employees have been put on paid leave. They have set up an emergency fund on behalf of the company in order to ensure that their savings do not get exhausted with regard to caring for elderly parents or school fees for children.

And finally, to avoid disadvantaging those who are the only breadwinners of their homes, they have taken a case-by-case approach to pay cuts. This ensures that those individuals do not feel the pinch.

Aparna also mentioned how her middle-class upbringing has benefitted her in the face of the pandemic

“My family’s lifestyle was never luxurious to begin with, so it has been easier to adapt to the situation,” she says.

“Our policy has always been savings first. We don’t live a frugal life by any means, but splurging and outings are rare.”

scirssor cuts salary

As the sole earner in a household of 6, Aparna also understands that the current situation warrants small changes to incur long-term profits. “We usually have two dishes at meal times, but we can reduce it to one for the time-being. We have also ensured that our domestic servants will be paid at this time, so that once this is all over, they can return to their jobs with their health intact.”

A good leader puts community first, and Aparna has shown that this is possible at work and at home. In such situations, a small salary cut can make big differences in company morale and employee attitudes.

When You Move From Profit To NonProfit

In a world fueled by profit (and products in service of profits), the existence of nonprofit organisations elevates a number of burdens across the board.

Nonprofits are a major player in the smooth operation of life as we know it. From helping the needy, to generating awareness about important issues, to creating platforms for the marginalised—they do it all.

The caveat? People who work in the nonprofit sector are likely to be paid very little as compensation for their services.

It is disappointing to know this, and it doesn’t make it alright. Especially in this moment in history, where in many states, NGOs have fed more poor and hungry folk than the government.

It is problematic that we do not fairly compensate those who work hard – with very few resources – to, let’s be honest, keep the nation afloat and improve the quality of our lives.

But that is a whole article (or five) in itself, and for the purposes of this article: it is not acceptable, but it is probable that if you work in the nonprofit sector, you will be paid less.

Ergo, if you shift from the profit sector to the nonprofit sector, be prepared that you will have to take a salary cut of a certain measure.

However, if and when you do return to a mainstream job after a non-profit stint, know that you are well within your rights to ask that your new compensation be based on corporate salary benchmarks and not your previous non-profit salary. 

When You Want To Pursue Your Passion Project

A lot of people ask where I used to work earlier, and it is difficult to articulate the fact that I didn’t work at an organisation. 

Rather, I worked on a project, as a research assistant and multi-tasker, under a writer. The seeds for the project had been sowed a decade earlier, when my boss came up with the idea of writing a book.

However, she had to wait until she was financially stable (and then some) before actually moving forward with it. So when she did reach that stage in her career, she took the time off to do it and saved enough money to hire one person for a year, along with other fringe expenses. 

woman paints

The rest of the project was crowd-funded, and all that money was spent on field research, expert consultations, and purchasing of resources like books and academic materials.

As for her own salary… she decided to take a year without a paycheck. It was a bold move, although bolstered by the privilege of having a partner who was financially well-off, and both able and willing to support her through the year.

Passion rarely intersects with profession in a way that is monetarily successful. When you make the decision to pursue your passion, it is a good idea to prepare yourself for a smaller paycheck. Or no paycheck at all.

I am in no way implying that you should live on an empty stomach. But if your passion doesn’t pay well, then having the savings and the financial acumen to sustain yourself is a good idea.

When Salary Cuts Are Not Okay

Fact: salary cuts are rarely useful, and never easy. The reality is that losing a portion of one’s paycheck is more often a debilitating event. 

Across the country, horror stories of starvation and lost stability abound. The PARI Network has been tirelessly documenting the plight of rural peoples who haven’t seen food supply in weeks, domestic workers who are being shuffled from ration shop to ration shop, and children who are being forced to become roadside vendors because their parents have been laid off.

Although it seems troubling to end on a somber note – as we are saturated with negative news – I would be remiss if I did not conclude by saying that the loss of livelihood is not the same as a salary cut taken by choice.

It is okay to accept the loss of a portion of your income when you have the benefit of already being financially secure. Salary cuts make sense only if the loss of that portion of your income will not result in impoverishment.

Do not cut the paychecks of those who would not survive without it, even if it means giving up small luxuries and comforts which are wanted, rather than needed. 

In these times, it is important to look out for one another, and to ensure that we come out on the other side of the pandemic successfully, and most importantly, together.

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