Salary Reduction Letter
This Notice of Reduction of Salary is a letter explaining that you are reducing an employee’s pay when your business is facing challenging times.
5.0 (2 reviews)
Last updated January 29, 2025
Under 5 minutes
Suitable for Australia
Written by
Edwin Montoya Zorrilla
Reviewed by
Damin Murdock
Document Overview
The reduction of salary should always be authorised in writing by the employee and is principally for the employee’s benefit. A written record can help protect your business if any questions or legal issues arise regarding the pay reduction.
You can face up to $12,000 in fines if you do not have legal reasons to do so. Therefore, it is recommended that you communicate with your employees before reducing their salaries in order to obtain their understanding and reach a mutual agreement.
The Legal Risk Score of a Salary Reduction Letter Template
Our legal team have marked this document as medium risk considering:
- Reducing employee salaries may lead to decreased morale and productivity, which could affect the overall performance of the business.
- There is a risk of increased employee turnover as individuals may seek higher-paying opportunities elsewhere in response to the salary reductions.
- If not done properly, this process could create a breach of the Fair Work Act.
Salary Reduction Letter Checklist
Complete your free Salary Reduction Letter with our checklist
Ensure Proper Communication
Ensure that the notice is clearly communicated to the employee, specifying the new salary amount and the effective date of the change.
Monitor Financial Status
Regularly review the company's financial status as mentioned to assess if further adjustments to the salary are necessary.
Maintain Open Dialogue
Encourage employees to share their thoughts and concerns regarding the salary reduction, fostering an open line of communication.
Document Updates and Responses
Keep records of any updates or changes in the financial situation and document responses or feedback from employees regarding the salary reduction.
Use this Notice of Reduction of Salary if:
- You would like to reduce an employee’s pay due to reasons other than their performance.
- You would like to concisely explain to the employee why the pay cut is necessary.
- You want to follow all the proper processes in reducing the employee’s pay
- You would like to have a record of the reduction of salary.
What does the Notice of Reduction of Salary cover?
- Explains the reasons why the pay cut is necessary.
- Informs the recipient when the pay cut will be implemented
- Sets out the new pay rate and the effective date
Other names for Notice of Reduction of Salary include:
- Notice of Pay Reduction
- Salary Reduction Letter
- Notice to Reduce Payment
- Notification of Pay Deduction
Further information:
- Reducing an Employee’s Pay: What You Need to Know (2019 Update)
- Avoiding the Pitfalls of Redundancy: Lessons for Employers
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