WORK/LIFE
04/26/2019 14:45 EDT | Updated 04/26/2019 15:48 EDT

This Is When Taking A Job Pay Cut Can Actually Be Worth It

You need to weigh the short-term financial risks with the long-term career rewards, among other things.

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There are conditions for when a salary cut can pay off, career experts said.

You get the opportunity to have the job of your dreams, but it comes with a catch: a significant pay cut. Do you take it? 

There are risks. Existing salary gaps already can create a cycle of being underpaid in future jobs and in retirement, especially for women. Before you accept a pay cut, you should research pay ranges for the role so you know the difference between being low-balled and what might be industry standard.

But there are situations when the rewards of the job might outweigh the risks, and a job with a pay cut can actually be the jump-start your career needs to grow. Consider taking a pay cut if: 

1. You’re going to be more engaged

Too many of us sit at our desks completely uninterested in the jobs we do. Only 1 in 3 American workers say they are “involved in, enthusiastic about and committed to their work and workplace,” according to a 2016 Gallup survey of 30,600 workers.

If you have the financial privilege to be able to take a lower-paying job that will allow you to find more meaning in your work, the trade-off can be worth it. In a Fidelity survey of 1,500 workers, millennials ages 25 to 35 said they would take an average pay cut of $7,600 if they could get more career development and find more purposeful work. 

“Oftentimes, the conversation always comes back around to what is going to keep you resentment-free,” said Lindsey Lathrop-Ryan, a career and business coach. “Everyone is holding multiple priorities when they’re considering pay. If that opportunity gives you things that outweigh the financial piece and you’re not necessarily living at the edge of your financial means, then taking a pay cut makes a lot of sense.”

Lathrop-Ryan said some factors to consider are how you are going to be using your time, how you will be recognized by your new company, and whether you feel like your contribution will be making a difference. 

Remember that money is emotional. You want to make sure the lower salary does not lead to regret and resentment down the line. Cynthia Pong, the founder of Embrace Change, a coaching business that focuses on helping women of color to transition in their careers, said she advises business owner clients who are setting pay rates to do a gut check and ask themselves, “How would you feel if this was the salary? Does it make you feel resentful and upset, or is it something that you could live with because you know you are getting these other non-financial benefits?”

2. You’re going to have access to an invaluable experience or networks

You may be taking a pay cut in the immediate future for a larger payoff in the long run. Think of who you are going to work with as a benefit. “Access to mentors or industry professionals that are going to help move you up ― that translates to dollars,” Lathrop-Ryan said. 

It can be common to see compensation below the market rate offered by new business startups. That can be worth it if you are going to learn new skills. “A lot of people do it because it’s such a great learning opportunity,” said Alisha Ramos, the founder of self-care newsletter and editorial platform Girls’ Night In. “You get that on-the-ground experience from those early days, and you get to have your hand in a little bit of everything. If that’s something that is important to you, if that can help you grow your skills across many different buckets and departments, then I think that’s a great reasoning to take a bit of a pay cut.“

Consider what is driving you to take a pay cut in the first place. Ask yourself if the new role will give you professional development you would not get in your current job. “If you’re moving into a role that is just like the job that you already have, and there is not going to be a chance to move up anytime soon, it doesn’t make sense to take a pay cut,” said Ariel Lopez, a career coach and the founder of hiring platform Knac

To help weigh the pros and cons, Lopez said she asks clients to make a list of their non-negotiables and perks to help them figure out the professional needs that are personally important to them and how their lifestyle could improve. “All of those things are going to look different depending on who you are and where you are in your career,” she said. “Let’s say you are making $100,000 and you want to have kids and the Canadian-based company is offering you $75,000 but you get one-year maternity leave. ... Maybe it makes sense for you to take that role.”

In a 2019 Credit Loan survey of 1,000 employees, working women reported that they were willing to give up 20.1% of their annual salary to spend more time with their children. 

3. You’re making a big career switch

Each of us has a different tolerance for financial risk based on how we support ourselves and others. For some, the downsides of staying in a job are such that taking the salary downgrade for something new is worth it. 

“What’s gonna happen if you don’t take this chance and bet on yourself for this?” Pong suggested asking yourself. “Is it worth it to stay and continue on the path that you’re on for the security of it or the known-quantity-ness of it?“

One of the biggest career switches comes with leaving an established role to start your own business. Lopez said she took a pay cut from her job at General Assembly to found her own hiring business in 2016. “I could have stayed at [General Assembly as a career coach] as long as I wanted to. It was a great job. But I knew that me being comfortable and the longer I was there, the longer it was that I wasn’t working on what I wanted to be working on,” she said. “In the startup world, there is that fear, ‘If I don’t do it, who is going to do it?’ I didn’t want to see someone do what I wanted to do.”

Of course, skills are transferable and career switches do not automatically mean you should expect a pay cut in a new industry. That is where you need to do your homework and ask people who are doing what you want to do what people in the role typically earn. 

And don’t switch careers into a lower-paying role without a plan to support yourself. Having money saved up before you switch can give you peace of mind when you are not generating the income you used to ― and can also give you the option to leave if your career move does not work out.

“I think the cautionary tale is if you do that without any financial safety net, you lose your optionality to leave that position if it’s not the right one or if you find the workplace to be so abhorrently not a great fit, you lose that emergency I-need-to-get-out-of-this fund,” Ramos said. 

Before quitting her old job to launch her company, Ramos said she prepared herself financially by saving the equivalent of months of pay in her bank account. “That gave me the financial safety net to move forward with taking the pay cut. That can work well if you are, like me, a more risk-averse person, or if you, like me, also come from a background where you cannot necessarily lean on your parents’ finances as a safety net.”