Saving on Payroll Costs

You have several options available to reduce your payroll costs but be sure to remain compliant while making changes. Make sure you provide employees something in writing when making changes and, when possible, provide at least a few days’ notice.

Reduction of Hours

  • Instead of continuing a full-time schedule, consider cutting back hours.

Reduction of Pay

  • As long as employees are paid at least minimum wage for time worked, you can cut the hourly rate of an employee with written notice.
  • When cutting hours or pay of a salaried exempt employee, first consider converting their salary to an hourly wage (annual salary / 2080 = hourly wage). This allows you to make changes without worrying about still meeting the state minimum salary. Once hourly, remember they must now complete a timecard and take meal/rest breaks.
  • If they remain salaried exempt, you must pay for the whole week if they work at all that week.
  • Provide as much notice as possible when reducing pay but, in extreme times, a couple of days may be sufficient.

Work Sharing

  • A common version is, if you have more than one person doing the same work, you might consider having two people share one job. Each person works half the day.
  • EDD is also calling work sharing as a program where you’ve reduced hours and the employee can collect unemployment based on the lost wages. However, there are very specific qualifications for this program so check them out before using this program:


  • The company requires the employee take a specified unpaid amount of time off due to lack of work.
    • Employees remain your employees.
    • Employees are eligible to apply for unemployment benefits based on lost wages.
    • Employees may request to use any unused vacation/PTO time.
    • The Labor Commissioner MAY require you to pay out vacation/PTO for furloughs because it’s so similar to a layoff.
    • Sick time is not paid out.
    • Employees MAY be eligible to receive federal benefits if they qualify.


  • The company terminates the employee but plans to hire them back when able.
    • Employees are no longer employed by the company.
    • Employees are eligible to apply for unemployment.
    • Employees must receive a final paycheck on the layoff date, including any unused vacation/PTO time.
    • Sick time is not paid out and the balance becomes available to them when the employee is rehired.

This is a good time to stay in contact with your laid off and furloughed employees so they know you care! This is also a good time to start making plans to rebuild a better, stronger, and more profitable business. We will eventually get past this current craziness and you want to be ready for it.

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