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What You Must Know About Demoting an Employee

Demoting an employee is not easy, but sometimes it has to be done. An employee might not be doing well in their current position, and there is no other option left except reducing their responsibilities. Even if an employee voluntarily asks for a demotion, there are still challenges for you as an employer.

When you reduce an employee to a lower position, you need to do it quickly, effectively, and legally. There are many angles to consider while learning how to legally demote an employee.

Reasons to demote an employee

There are many potential reasons for demoting employees:

  • The employee demonstrated poor performance.
  • The employee lacks skills for their current position.
  • You are eliminating the employee’s position.
  • You are disciplining the employee for misconduct.

An employee might also voluntarily ask for a demotion. Here are examples of why an employee might ask you for a demotion:

  • The employee wants to reduce their responsibilities.
  • The employee is transitioning out of your business.
  • The employee wants to change positions.
  • The employee wants to adjust their work-life balance.
  • The employee wants to work remotely or from a different business location, but the current position does not accommodate the change.

Demotion vs. termination

You might wonder if it is better to demote or terminate an employee. The choice you make depends on the specific situation.

If an employee is valuable to your business but simply isn’t thriving in their current role, a demotion might be a good solution. If an employee does a wrongdoing, causes disruptions, or isn’t a good addition to your business, these might be good reasons for employment termination.

Problems of demoting employees

There are many downsides to demoting employees that might make it difficult to do.

A demotion can be an embarrassing and demoralizing event for some employees. That public shame can cause an employee to lose morale.

If the demoted employee was a supervisor, it might be difficult for them to join the people they once managed.

You might not be able to demote an employee to a previous position if you already filled that opening. If this is that case, you might have to move the employee to an unrelated position.

If you are disciplining, demotion might not be the best form of discipline, especially if you use it by itself. Discipline does not necessarily fix an employee’s misconduct.

In the end, the demoted employee might leave your business for another position. If you can, create an incentive for the employee to stay at your business.

How to demote an employee legally

You need to demote an employee legally. Before you demote an employee, make sure the demotion does not violate any company policies or contract that you might have with the employee.

You should never demote an employee based on race, age, gender, religion, or disability.

4 steps of demoting an employee

Telling an employee that you’re demoting them can be tricky. Here are four steps to smoothly navigate a demotion.

1. Tell the employee about the demotion

When demoting an employee, have a private conversation with them. What does demotion mean for your employee? Clearly state the reasons you are demoting the employee, especially if they are performance related.

Express your desire to keep the employee on staff. You aren’t terminating them, after all. Explain why you think the employee will do better in the new position.

2. Explain the new position

After you explain why you are demoting the employee, tell the employee about the new position. List the position’s responsibilities and expectations.

If the new position comes with lower compensation, tell the employee at this time.4 Steps of Demoting an Employee Graphic

3. Make a transition plan

Work with the employee to create a transition plan. Set a date for when the employee will be working completely in their new role.

If the employee needs to pass off projects or documents to another employee, include that in your plan.

4. Tell necessary people

It might not be appropriate to announce the demotion to all your employees. However, some employees might be affected by the demotion. For example, if the demoted employee supervised others, you should tell those employees who they report to now.

You should also decide what you will tell employees. Employees do not need to know every detail of the demotion.

Demotion and payroll

Sometimes a demotion comes with a reduction of pay. As the employee moves into their lower ranking position, their pay decreases as well.

If you are reducing a demoted employee’s wages, make sure you tell the employee first. Then, make the change in your payroll, starting the new rate on the correct date.

For your payroll needs, try Patriot Software’s online payroll software. The low-cost software lets you easily make changes to your payroll. Once you enter pay rates and tax information, we’ll do all the math for you, guaranteeing an accurate payroll run. Start your free trial today!

This article is updated from its original publication date of 8/7/2012.

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