should I take a pay cut?

While discussing consulting rates with two companies recently, I was forced to face an interesting question Рwhen times are bad should I be willing to accept reduced rates? Should  people who work for salaries be willing to accept pay cuts for new jobs Рor even worse, pay cuts in their current job?  Could you justify making 75% (or less) of what you once made, just to keep making money? Or is it better to grit your teeth and keep searching for Рat least Рpay equal to your previous position?

This question first of all depends on whether you’re in a position to weather a long downturn. If you’re living paycheck-to-paycheck, this question is answered with a resounding “yes, take the pay cut, just keep money coming in.” If you have some money set aside, you may be able to hold out longer for a better rate.

But what about taking that lower rate when you move on to the next job? Do you think the excuse that “it was just a filler” will work? Do you think the next company will bump you back up? When you’re working as a consultant or freelancer that might be the case – rates do fluctuate a bit. If you’re working for a salary, though, it’s going to be harder to justify returning to the salary you had before you took a cut.

And what about titles, or responsibilities? Does it appeal to you to work your way back up the line? For most people it is not desirable if avoidable. Nobody wants to be the 40-year old supervised by a 23-year old.

It’s not always easy. I know plenty of people who, for one reason or another, have had to make the decision to scale back in their careers, either salary-wise or responsibility-wise (or both). People do it out of fear or desperation or sometimes simply out of a desire to work, no matter what the level.

Many people may see this as an analytical question: should you accept an X% reduction in pay during economic hard times? I think this is a question that can only be answered by the individual in each case – finding a balance between pride and the need to work. Can you be effective knowing you’re working as hard (or harder) for less? Can you make do? In the end, it’s not something a career blog or a coach can help you with; you need to know whether you can handle the reduction, and live with the consequences.

5 comments

  • While this is more theoretical for me as I don’t have a lot of churn, I’ve always seen charging as a situational thing. “Parachute drops” of short duration may command high hourly rates – or a flat fee. Semi-permanent on-site positions will be a lower rate, but obviously more consistent income. Side jobs may get the parachute-drop rate or be charged a flat fee for an agreed result.

    Obviously, you can only charge what the market will bear. That’s both the good part (in go-go times) and bad part (in lean) of being independent. Unless you’re in a situation where your next customer will somehow know what your last customer paid you, the only relevant point is that income > no income.

  • Thanks for the blog and your insights on income. I just read a great book called “Crush It” it is NY best seller. The author Gary believes everyone should be in business for themselves to an extent. Anyway, when the free market principles are allowed to work again in this great country of ours, it will set the salary and encourage anyone who does want to some real money to jump in.

  • Jacq @ Single Mom Rich Mom

    I recently did take a paycut in a consulting contract and don’t regret it. The people are great, the work is fine – these are the things that mean more to me now than what my title is or what I’m doing at work nowadays. Sure, I could possibly earn more as a middle level manager – but with that status comes the responsibility (read OT) as well. I’d much rather be paid by the hour as a project person so they think twice about asking me to put in OT and I think twice about taking unpaid time off.

  • Its the old opportunity cost; if you have nothing else coming in, then take a paycut to keep the cash rolling. If this means that you will miss out on higher amounts of cash in the near future, then don’t. I took a pay cut last year and it meant that we had to reduce headcount by a smaller number, which meant that as our business rebounded this year, we were not so short staffed.

  • I think it’s immaterial what the external conditions are alleged to be (e.g., “hard economic times”) and really what a person’s circumstances, goals, capabilities, and drive might be.

    Letting temporary and uncontrollable external situations drive your life is a dangerous thing to do.