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Salaried Wage Reduction California

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  • Salaried Wage Reduction California

    Can a California employer arbitrarily reduce a salaried person's wages? We have an employee who was hired at an agreed-upon rate by the president who is a 50% owner of the company and this individual reports directly to him. The two other owners (25% ownership each) are upset at the agreed-upon rate and want to reduce the wages by $10 an hour and are putting the pressure on him to reduce the wages. There is no work reduction, the company is financially doing very well so there is no economic reason for a wage reduction, and there are no complaints about the work performed. The two other owners' wives will be added to the payroll at a rate over what the person will be paid after the reduction but will not perform any work or even ever report to the business (they are doing this so they can participate in the 401(k) plan), which we match 100%.)

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    It is my understanding that they can but only on a going-forward basis for hours not yet worked unless there is an employment contract that specifically spells out the salary for a specific/ongoing length of time. Offer letters are not generally considered a contract. You can always take any offer letter to an attorney to see if it rises to the contract level, but most do not.

    There does not have to be an economic or performance reason for the decreasing of the wages. However, they cannot pay less than the amount for time already worked.

    As for the other owner's wives and the 401k plan, it is going to depend on what the plan document says on eligibility AND if they have to pass non-discrimination tests (if they are NOT a safe harbor match plan). If the plan allows, they can put up to certain max limits into the plan per year again subject to some annual IRS limits. It is very doubtful the IRS will audit whether they ever came to the office or did any work.

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