Can an employer reduce an employee's pay to minimum wage during his or her two-weeks' notice period?

The Fair Labor Standards Act generally does not prohibit an employer from reducing an at-will employee's hourly rate, provided the employee is paid at least minimum wage. However, the Department of Labor notes that reductions in the predetermined salary of an exempt employee would ordinarily result in the loss of the exemption.

There are several other factors that an employer should consider before taking such a step.

First, if the employee is working under an employment contract or is covered by a collective bargaining agreement, employers may be limited regarding the type and timing of any pay reductions. Next, several states have specific regulations that outline the amount of notice required prior to making any changes to an employee's pay. The timing for the required notice ranges from immediately before the hours are worked to as much as 30 days. Therefore, it is critical that an employer review state law requirements to ensure sufficient notice is given to employees prior to any adjustments to the wage rate. One additional common factor within most state regulations is that pay reductions can only be applied to the future hours worked and may not be applied retroactively.

Outside of legal requirements, employers should consider the potential negative impact such a practice may have on the employee retention and morale. Many organizations have policies that request or require employees to provide two full weeks' notice when voluntarily separating from employment. This notice period serves as an important time to transition the current workload. If an employer's policy is to reduce an employee's pay to minimum wage during that two-week period, this policy would likely discourage employees from giving advance notice of termination. Therefore, although an employer may save some money by reducing the pay of an employee during the notice period, there are compliance issues and employee relations concerns that should be fully considered to determine if the savings sufficiently offset the potential costs.