Have you ever been tempted to accept a pay cut?
When evaluating a job, there are many different factors to consider in addition to salary. There’s the job itself, your level of responsibility, your title, potential for future growth, and so on. There are also compensation perks like holidays, bonuses and company shares.
So, is there ever a good time to willingly take a pay cut? Here are seven instances where you may consider taking a pay cut, and what the experts had to say.
1. WHEN YOU’RE MAKING A CAREER CHANGE
One of the big reasons to take a pay cut is if you’re switching industries.
David Bakke of MoneyCrashers.com remembers when he took a pay cut a few years ago because he wanted to get out of the restaurant industry. “I was tired of all the long hours and weekend work,” he says.
“My new position involved a salary cut of roughly 10%, but also afforded me more time to spend with family and friends. Plus, the health insurance benefit was better than at my restaurant position, and I had all major holidays off.”
2. WHEN YOU CRAVE WORK-LIFE BALANCE
One survey found that 45% of working adults are willing to give up some percentage of their salary for more flexibility at work—on average, they’re willing to relinquish nearly 8.6% of their income.
LeeAnn Shattuck took a 15% pay cut 13 years ago when she left one company to join another. “I had been working 80 hours a week with [company], traveling five days a week. The new company offered me the opportunity to stop traveling and work from home,” she said. Even after all this time, she’s never regretted the decision.
3. WHEN THE NEW OPPORTUNITY IS WAY BETTER
In her first job out of college, Annabelle Chung was making $42,000 and expecting an annual bonus of about $10,000. She received another job offer at a startup, but the fledgling company couldn’t afford to match her prior salary. Not only was the new job offering only $35,000, it would require walking away from her bonus just a month before it came due.
All the same, Chung was beyond burnt out: “I would come home crying regularly and felt like I was losing a grip on who I was.” Although she was making a pretty good wage, she didn’t sense much potential for future growth.
In the end, she lost out on about $17,000, but finally felt free. “After making the switch, I felt doors opening up to me, and learned so much from the new position,” she says. She excelled at her new job, and as the company succeeded, she more than reclaimed her old salary—after only a few years, she was making nearly double what she had at the old gig.
4. WHEN IT ALL EVENS OUT
Julia Angelen took a pay cut from $65,000 to $50,000 to “get out of one crazy company and to work five minutes from home,” she says. Although she was down $15,000, she saved enough in other costs to at least partially even the score, like “the cost savings in gas, eating out (I often went home for lunch), and massages and wine due to stress,” she says. She walked to her new job some days, which further reduced driving costs and squeezed exercise into her day.
“My title and level stayed the same, so it was a lateral move. Also, I knew the economy was struggling, so later, it would look like it was economic forces that drove my salary down,” she says.
Angelen’s salary was reduced on paper—which admittedly could hurt her in future job searches—but she had a ready explanation and a budget that worked out without putting her in the red.
5. WHEN THERE’S SOMETHING YOU WANT MORE
Sometimes it’s beneficial for an individual to take less base pay and ‘sweeten the deal’ in other ways. These other ways could include pay-equivalents, like a signing bonus, annual performance bonus, additional holidays, paid time off or tuition reimbursement.
6. WHEN STRIKING OUT ON YOUR OWN
Maybe you’ve always wanted to start your own company, or you harbour dreams of freelancing. Either way, self-employment always comes with some risk, often including a short-term pay cut while you get your new company off the ground.
Ivan Karp* is a freelance software developer, but he used to work at a consulting firm with long hours, a demanding boss and very little office camaraderie.
He knew he was taking a pay cut by going freelance, but felt it was worth the trade-off: Now he can make his own schedule, and his life is far less stressful.
Perhaps best of all, Karp can charge much more by the hour as a freelancer than when he was a salaried employee.
7. WHEN YOU’VE HIT THE SALARY CEILING
If you’ve maxed out your salary potential and your career path is blocked (say, it’s a small company and there’s no room for a promotion, or someone else already holds the job you want), then it might be time to look for another opportunity.
“Taking a position in a fast-growing company, for example, may lead to multiple opportunities for career growth and salary increases,” he says, “so a short-term salary cut may simply be seen as an investment in better long-term career prospects.”
If you do accept a pay cut, you may need to adjust your budget. The bottom line? Be self-aware and make sure that you’re taking a pay cut for the right reasons and you won’t regret it later.