We study the interaction between monetary policy and labor supply decisions at the household level. We uncover evidence of heterogeneous responses and a strong countercyclicality of hours worked in the left tail of the income distribution. While aggregate hours and labor earnings decline after a monetary tightening, individuals at the bottom of the income distribution increase their hours worked. We show that the empirical patterns are consistent with a standard one-asset HANK model. The model reveals that strong income effects at the bottom of the distribution can account for the observed countercyclical labor responses, highlighting how labor supply adjustments act as an additional margin through which households smooth consumption. Comparing this to a model with a homogeneous labor supply, we find that labor supply heterogeneity reduces the aggregate MPC and further shifts the transmission of monetary policy away from intertemporal substitution toward direct income effects.