By Yin Juquan, Zhang and Yuanhao. King & Wood Mallesons’ Commercial & Regulatory group.
Reduction of an employee’s salary is often a consequence of the employer’s decision to demote the employee for some reason. However, the employer should refrain from meting out a pay cut arbitrarily. Usually, lawful pay cuts occur in two circumstances – when both employer and employee agree on it, or when the employer enforces it by law.
Pay cut agreement between employer and employee
Remuneration is a necessary clause of an employment contract. Article 35 of the Labor Contract Law provides that the terms and conditions of an employment contract may be modified if employer and employee agree so, and any modification must be made in writing. A pay cut derived from consultation and confirmed in writing is of course in accordance with legal requirements.
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