10 Biggest Threats to Your Paycheck and How To Protect Yourself

For working people, your paycheck is your connection to all that you need, from housing to healthcare. While we’d all like to think we can count on our paychecks to keep coming without interruption, bad things do happen to good working people.

Personal emergencies, an employer’s financial problems and natural catastrophes can derail that salary and send your life into a tailspin — unless you are ready for them. But how to prepare?

“Preparation prevents poor performance,” is the motto of Christie McPherson, CEO of AIM Advising, a career search organization.

She said you can “disruption-proof” your pay as long as you act early. “Preparing for disruptions, hurdles, challenges, layoffs, pay cuts and hiring freezes is crucial to your financial stability.”

With McPherson’s help, we’ve outlined 10 big threats to your paycheck and how you can protect yourself.

Everyone gets sick from time to time, but the paid sick days built into your wage package work better for the flu than for more serious illnesses like cancer. Health insurance may cover most of your medical bills, but what about lost wages?

What to do: “Familiarize yourself with company benefits before you need them,” McPherson said.

If the benefits aren’t generous, buy supplemental insurance, like that offered by Aflac, or income insurance, to cover loss of income resulting from illness or injury. Income insurance won’t necessarily pay for all your lost income; most of the time it will cover 75% of the first $20,000 of gross monthly income and 50% for any income over $20,000.

You may also need to obtain short-term disability insurance in case illness or injury leads to missing more than just a couple of weeks of work.

Nobody likes to think about becoming permanently disabled and unable to perform an income-earning job. But both catastrophic accidents and debilitating illnesses can result in total disability.

What to do: Apply for Social Security disability benefits to prevent your income stream from drying up in case of a long-term disability. To qualify, your disability must be projected to last at least a year and prevent you from doing your current job or any other job.

You look after your finances and you expect your employer to do the same. But sometimes an employer’s debts get out of hand and lead the way to bankruptcy court. If it is Chapter 7 bankruptcy, the company and your job are history. If it’s Chapter 11 reorganization, you may be able to keep your job but expect layoffs and perhaps a salary cut.

What to do: Don’t wait for a crisis to happen: build an emergency fund with enough money to pay your basic living expenses for three to six months so you have enough money to fall back on in case you need to find another job. There are dozens of ways to save effectively for an emergency fund.

Many people struggling with substance use disorders — which can fall into the misuse, abuse and even addiction realms — hold down jobs, but it can have a detrimental impact on your paycheck. Substance use can cause you to neglect your job responsibilities, be antagonistic toward colleagues and even miss work, which can lead to termination.

What to do: Rehabilitation programs help you improve your relationship with substances before your job is in danger. Get help as soon as you recognize the problem. Medical care for substance use disorders is covered in Affordable Care Act policies.

You may be thrilled to be starting a family, but less thrilled about the bite pregnancy might take out of your paycheck. Some companies offer paid maternity leave, McPherson said, but yours may not. There are only 13 states that offer paid time off.

Most people need to take, at minimum, a few weeks off to have the baby, as well as recover from birth, and might need to stop working as early as their first trimester if there are complications. Additionally, the non-birthing parent may also need to take time off to help with the baby at home.

What to do: Purchase short-term disability insurance before conception to cover lost pay during pregnancy, childbirth and any postpartum problems.

“Blowing the whistle” means reporting a violation of law or the public trust committed by your employer to the authorities. For example, if you tell the Environmental Protection Agency that your employer is dumping toxic waste into a nearby creek, you are a whistleblower. Federal laws protect whistleblowers from demotion or termination. You may have a long legal fight ahead, during which it’s possible you’ll have no paycheck.

What to do: Have alternative job offers lined up, or at least your resume updated, before you spill the beans. Make sure your finances are prepared for a job change.

If your employer goes into Chapter 11 bankruptcy, or is simply having financial problems, the company may force salary reductions. In a salary reduction, you are asked to do the same work for less pay. Despite the smaller paycheck, you may value your job and not want to leave.

What to do: Negotiate a shorter work week and get a part-time job, or take up a side hustle, during your days off to make up for lost wages until your pay goes back up. It wouldn’t be a bad idea to polish up your resume and look around for other jobs in the meantime, as well.

If you owe child support or taxes, your wages can be garnished without an additional court order — this means the IRS withdraws the money from your paycheck automatically. Other creditors must first get a judgment and court garnishment order.

Wage garnishment requires that your employer hold back a certain amount of money from your paychecks to be sent to your creditor. Your employer can’t fire you for one wage garnishment, but that’s not necessarily the case if you have more than one.

What to do: Work with creditors early to find a compromise repayment agreement that doesn’t include garnishment.

Almost every week brings news of new natural disasters, ranging from hurricanes to flooding to earthquakes. Disasters can affect your paycheck in any number of ways: You could lose your home, in the event a natural disaster strikes your town, which is especially tough for folks who work from home. Your place of business could be damaged and have to shut down. Or you may have to take time off work to deal with the fallout of a disaster.

What to do: Home-based employees can buy commercial coverage to get business interruption benefits, including lost wages and healthcare due to a natural disaster. Plus, there are some simple and affordable ways to prepare your home for weather catastrophes. 

New technologies, especially the rising use of artificial intelligence, can pose a threat to jobs that are susceptible to automation. Some types of jobs in particular are facing extinction.

“Companies are consistently looking for ways to cut costs and, unfortunately, that includes their human capital,” McPherson said. “Depending on the type of work you do, being replaced by a system, software or artificial intelligence may be a real threat.”

What to do: Keep studying, learning and evolving your skills to keep pace with the ever-changing job market and position yourself for the future. If you’ve ever thought about taking on a new skill set, don’t wait!

Problems and challenges that threaten your paycheck are almost inevitable in this fast-paced world. Taking action now can keep your life on track no matter what. Preparation can prevent poor performance, and it can also keep you far from financial disaster.

Jordan Rosenfeld contributed to the reporting for this article.