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 the
employee.
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 minimum wage.
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 minimum wage.
Personal use of company car. Employers may deduct these costs, but only if the employer does not
benefit from such use.
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 shortage.
• 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 are met:
• 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.
Please see the
national Garnishment
section.