7 Tips to Help You Handle a Pandemic Pay Cut
The coronavirus pandemic drastically altered both the corporate and small business landscape. Many companies were forced to furlough or lay off employees to avoid serious cash flow issues, while others shut their doors altogether.
But some companies adopted another approach—they slashed compensation to recoup revenue losses and keep their workers employed. In the airline industry, CEOs and top management cut their own wages by 10% to 20%, as noted by Korn Ferry. And 61% of publicly traded companies who announced pay reductions slashed the base salaries of senior managers, according to a study by The Conference Board.
If you were given an unexpected pay cut due to COVID-19, there are actions you can take to stay afloat financially. These tips are also valuable if you go through a temporary or permanent layoff in the future.
Apply for Partial Unemployment Benefits
The Families First Coronavirus Response Act (FFCRA), signed into legislation on March 18, 2020, made it possible for states to extend unemployment benefits by up to 13 week, and to make benefits available to workers who would ordinarily be ineligible, such as independent contractors, gig workers, and other self-employed individuals.
You may be eligible for partial unemployment benefits if your wages have been cut. The eligibility requirements vary by state, but the general rule of thumb is that you’ll only qualify if the reduction in hours or earnings was through no fault of your own.
Contact your state’s unemployment office to find out what unemployment benefits you’re eligible for. It will also be able to provide guidance if you previously worked in several states.
Create a New Budget
Any time your earnings change, you need to revisit your budget and make adjustments.
If you’re new to budgeting, the first step is to create one. Include all of your expenses, and label which ones are needs and which are wants. Review credit card and bank statements to make sure you don’t neglect easy-to-miss recurring expenses (like monthly fees for streaming services). Next to each expense, note whether it’s a need or want. For example, rent would be a need, whereas a Hulu premium subscription would be a want.
You may have to trim down your list of wants if your new pay rate leaves you with more bills than money. If these cuts still aren’t enough, strike more wants from your budget so that your total expenses are less than or equal to the money you have coming in. Hopefully, these will only be short-term sacrifices.
Cut Back on Discretionary Spending
Another way to reduce your budget is to cut all non-essential expenses by a set percentage across the board. The non-essentials are just that—items you don’t really need. Think take-out meals or new clothing purchases (if you already have a closet-full).
You can start small and reduce by 10% or 15%. To illustrate, if your discretionary spending is $1,000 per month, a cut of 15% will free up $150 and still allow you to purchase some of the items or services you enjoy. If you need to save more money, increase this percentage.
If reducing discretionary spending isn’t enough to put your budget in the black, go back to your list of wants, and axe the more expensive non-essentials.
Save on Necessities
While working toward a viable budget for your household, review your list of necessities, and identify items you can save money on. For instance, if grocery bills are high, create a meal plan around food items you can buy on sale.
Contact service providers to inquire about reducing your bills. Auto insurance providers may offer programs to help policyholders save on premiums, such as payment deferments or loan extensions for policyholders experiencing financial hardships as a result of COVID-19.
If you’re struggling with credit card payments due to a pandemic-related pay cut, you may be eligible for a lower interest rate, reduced or deferred payments, waived late fees, or a repayment plan based on your situation. Contact your card issuer for options.
Apply for Assistance
A range of assistance is available if you qualify.
- Utility bills: The Low Income Home Energy Assistance Program (LIHEAP) may be an option if you can’t afford your energy bill. You can also get assistance with your telephone service through the Lifeline Program.
- Student loans: All federal student loans are currently under an administrative forbearance until September 30, 2021. But if you’re having trouble making private student loan payments, call your loan servicer to learn what assistance is offered on a case-by-case basis.
- Mortgage or rent: The Federal Housing Finance Agency (FHFA) extended the moratorium on single-family foreclosures and real estate owned (REO) evictions to March 31, 2021. Eligible renters impacted by a pandemic-related job loss are also protected from eviction under a ban from the Centers for Disease Control and Prevention (CDC) to June 30, 2021. To be eligible for protection, renters need to fill out and submit a CDC form to their landlord.
- Cash assistance: Cash assistance is offered through the Temporary Assistance for Needy Families (TANF) program, and the requirements vary by state. Use this Office of Family Assistance tool to find the contact information for your respective state.
- Food assistance: Food pantries, food banks, and subsidized programs can lend a helping hand if you're unable to afford groceries. Find resources available in your area through FoodPantries.org, your state’s social service agency, or on the food assistance page from USA.gov.
Try Not to Shortchange Retirement or Savings
It may seem sensible to scale back or stop retirement contributions to free up more cash. But doing so could have serious implications for your retirement plan, and it could limit the power of compounding interest to work in your favor.
As long as you're not sacrificing credit card or other payments that could ruin your credit, try to contribute at least a small portion to retirement each month. For example, adjust the percentage you contribute to 10% of your income. If possible, also continue to build your rainy day fund.
If your rainy day is here, don’t stress over contributions you can’t afford. Instead, focus on maintaining your credit score and getting yourself back to a position where you can make regular retirement and savings contributions.
Think About Long-Term Goals
If the coronavirus pandemic altered your perspective and thoughts on your career, take the time to draft a new list of long-term goals. If you now desire a more meaningful career, to earn more money, or to spend more time with family, jot down specific action items in order to make your goals realities. And set feasible deadlines for the goals you set, in order to realistically accomplish them.