Employers may reduce an hourly employee's pay rate as long as the lowered rate is equal to at least the federal minimum wage, says the U.S. Department of Labor. Employers are also allowed to reduce hourly employees' hours, but must continue to pay any overtime accrued.
As the Small Business Administration points out, employers are also entitled to cut the pay of salaried or exempt employees, who are employees who receive the same pay regardless of the number of hours worked. It is sometimes demoralizing to cut employees' pay while requiring them to work the same number of hours, however. If a salaried employee's pay is cut below the weekly earnings of a full-time minimum wage worker, the employee's status is likely to shift to that of an hourly employee, meaning overtime work must be compensated.