What are deductions from pay? Deductions from pay
are deductions taken directly from an employee's paycheck. The federal law
on deductions from pay contains few restrictions when compared to the laws
in many states. Under federal law, almost any deduction is permitted, even
if it reduces the employee's pay below the minimum wage in some cases. Certain
deductions may specifically reduce pay below the minimum. However, there are
a number of deductions that may not be made if they result in pay that is
less than the minimum wage. These rules apply only to nonexempt employees
who are covered by minimum wage requirements. In general, deductions from
pay should be made only where required by law or authorized in writing by
Many states regulate wage deductions much more strictly than
does the federal government. Accordingly, the rule that is most advantageous
to the employee will control.
An employer may deduct the “reasonable cost” of providing the
following items even if the employee's cash wage drops below the minimum wage:
Federal, state, and local taxes. The
required withholdings for federal, state, and local taxes, including FICA,
may reduce wages below the minimum wage. However, an employer may not deduct
from the employee's wages taxes that the employer is required to pay.
Meals, lodging, and other facilities.
The reasonable cost or fair value of meals, living quarters, or other facilities
may be credited as part of the minimum wage. “Fair value” is not retail value;
it may not include any profit to the employer or its associates. The employees
must be told that these amounts are being deducted from their wages, and they
must voluntarily accept the deductions. The facilities must be for the benefit
of the employees. If they are for the employer's benefit, they may not be
credited against the minimum wage. For example, if an employer gives employees
supper money because it needs them to work overtime, that supper money may
not be credited against the minimum wage.
Transportation provided by the employer. This
may be credited against the minimum wage, but only if the travel time does
not count as time worked and is not necessary to the employer.
Fuel and merchandise. Fuel
for residential heating and cooking and general merchandise provided by company
stores may be credited against the minimum wage, but only if they are reasonably
connected to board or lodging.
Instructional costs. Tuition
furnished by a college to its student employees may be credited against the
Deductions that benefit the employee. This
category includes deductions for life insurance, health insurance, pension,
and welfare plans; contributions to charity; repayment of salary advances;
and the purchase price of U.S. Savings Bonds. These deductions may cut into
the minimum wage if the employee freely assents and if the employer derives
no profit or benefit from the deductions.
The following items may be deducted from pay, but the resulting
wage must be at least the federal minimum wage:
Shortages. Employers have
a limited right to recover cash shortages from cashiers and other employees
who handle money. Employees should be notified in a written agreement signed
by both the employee and the employer that such deductions may be made.
Note: In the case of misappropriation
by the employee as opposed to a mistake, it may be possible to deduct the
full amount of the theft, even if it reduces the employee's pay below the
Personal use of company car. Employers
may deduct these costs, but only if the employer does not benefit from such
Tools. Employers may deduct
the cost of providing the “tools of the trade” and other material necessary
for carrying out the employer's business as long as the deduction does not
reduce the employee's pay below the minimum wage.
Uniforms. Employers may deduct
the cost of providing and maintaining employee uniforms if uniforms are required
by law, by custom, or by the employer. The uniform must be an actual uniform
(or a specific pair of shoes) and not just a certain type of basic street
clothing or shoes, and the deduction must not reduce wages below the minimum.
A Department of Labor opinion letter has stated that an employer may not use
an employee’s tips to cover the cost of uniform laundering.
For example, if an employee who is subject to the statutory minimum
wage of $7.25 per hour is paid an hourly wage of $7.25, the employer may neither
make any deduction from the employee's wages for the cost of the uniform nor
may the employer require the employee to purchase the uniform on his or her
own. However, if the employee were paid $7.75 per hour and worked 30 hours
in the workweek, the maximum amount the employer could legally deduct from
the employee's wages would be $15.00 ($.50 x 30 hours). An employer may prorate
deductions for the cost of the uniform over a period of paydays provided the
prorated deductions do not reduce the employee's wages below the required
minimum wage or overtime compensation in any workweek.
Note: In some cases, new
employees are required to pay in advance, post a bond, or make security deposits
for uniforms. In such cases, the employee must be reimbursed no later than
the first regular payday to the extent that these costs brought the employee's
pay below the minimum wage. However, employers are not required to reimburse
employees for required clothing that does not have a company logo and could
be worn outside of work for nonwork activities (e.g., the employer requires
employees to wear khaki-colored pants and a navy blue golf shirt) even if
the cost of such clothing reduces the employee's wages below the minimum wage.
Typical problems that get employers
into trouble are:
• A minimum wage employee working
as a cashier is illegally required to reimburse the employer for a cash drawer
• An employer improperly requires
tipped employees to pay for customers who walk out without paying their bills
or for incorrectly totaled bills.
• An employer furnishes elaborate
uniforms to employees and makes them responsible for having the uniforms cleaned.
• An employee driving the employer's
vehicle causes a wreck, and the employer holds the employee responsible for
the repairs, thereby reducing the employee's wages below the minimum wage.
• A security guard is required
to purchase a gun for the job, and the cost causes him or her to earn below
the minimum wage.
• The cost of an employer-required
physical examination cuts into an employee's minimum wage or overtime compensation.
If an employee requests an employer to make deductions
and pay them to a third party, the employer may do so if the following requirements
• The payment is made to a third party.
• The employer does not receive any benefit from the transaction.
• The transaction is not made to evade the law.
Examples of voluntary assignments that are acceptable include:
union dues under a checkoff system, savings bond purchases,
insurance premiums, and voluntary contributions to charity. Also, the laws
of some states permit employees to assign their wages voluntarily in order
to repay their debts. Assignments that are unacceptable are those from
which the employer or anyone acting on its behalf or in its interest derives
any benefit, either directly or indirectly.
Union dues. Employers should
withhold union dues and remit them to the union as stipulated in an agreement
between them. Those employees who elect not to join the union may be required
to reimburse the union for expenditures related to the benefits they receive
from collective bargaining, contract administration, or grievance adjustment.
However, nonmembers cannot be required to pay for nonrepresentational activities,
such as contributions to political causes.
An involuntary assignment of wages--also called a garnishment--requires
an employer to deduct certain amounts from an employee's wages in order to
repay the employee's debts. Employers are notified of garnishments through
official court papers.
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