According to the Department of Labor, an employer is legally allowed to reduce the salary of non-exempt employees and exempt workers under labor law rules. An employer cannot reduce any employee's salary to below the current minimum wage. Workers also cannot be required to work additional hours without fair compensation.
When it comes to exempt employees, pay can be reduced based on long-term business interests. Under current law, the predetermined contract of an exempt employee can be adjusted should the employer face financial difficulties. However, employers risk changing an exempt employee to non-exempt status should they erratically reduce pay on a short-term basis, according to the DOL.
It is also legal for an employer to reduce the number of hours worked by employees as a way to reduce labor costs. Some employers reduce both salary and hours, which is okay as long as the employer continues to pay minimum wage, says the DOL. Employers must also pay overtime rates set by state and federal laws.
What can get an employer in trouble is reducing salaries for prejudicial reasons, as About.com points out. Employers may not target certain workers for less pay because of their race, gender, age or other legally protected designations. Employees can check state and federal labor laws for more information on employee rights under current wage laws.