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Employee Rights    

IS YOUR EMPLOYER MAKING LAWFUL DEDUCTIONS FROM YOUR PAYCHECK?

     At pay day, an employee may look at his or her pay stub and see hours worked, salary or hourly rate, gross earnings, and “deductions.” Unless the deductions have been explained, some employees will have vague ideas about what the deductions are for. There was the story of basketball superstar, Shaquille O’Neal who, while looking at huge deductions on his paycheck, asked, “Who is Mr. FICA?” (Alas, “Mr. FICA” is really the Taxman, officially called the Federal Insurance Contributions Act tax.)

     Some even shrug off these deductions and see them as inevitable like death and taxes. Funny or not, it is helpful to know whether the right deductions are made to ensure that the employee gets the correct take home pay.

     A deduction is essentially a subtraction of money from the employee’s paycheck. The employer takes a ‘deduction’ when it withholds, sets off, or requires the employee to return, a portion of the wages promised so that the employee, who has done the work, actually receives less than the promised compensation. In order to protect employees, the law regulates deductions. Therefore, there are certain deductions that employers may or may not make.

     The following are permissible deductions from an employee’s paycheck:

       1) Deductions authorized by state or federal law – These deductions include state and federal income taxes, social security taxes, and state disability insurance taxes. Wage garnishments are authorized only if there is a prior court judgment. Creditors cannot simply ask the employer to deduct money from an employee’s wages to pay the employee’s debts to the creditor. The creditor must seek an order from the court to do so. If there is no such order (or judgment), a creditor cannot garnish an employee’s wages.

     Once a judgment has been issued, however, the creditor (now called a judgment creditor) may levy what’s called ‘a writ of execution’ and compel the employer to withhold and turn over to the levying officer 25% of the employee’s (now called the judgment debtor) earnings. If the debt was due to an outstanding support order, the levying officer may withhold as much as 50% of the employee’s earnings.

       2) Deductions expressly authorized by the employee in writing – Examples of deductions that an employee may authorize in advance include: premiums for life, health or disability insurance, contributions to pension or retirement plans, and other deductions made pursuant to voluntary wage assignments. However, the employee must authorize these deductions in writing.

       3) Deductions to cover health and welfare or pension plan contributions expressly authorized by collective bargaining or wage agreement – These deductions may normally be found if an employee is a member of a union and the deduction is made according to the terms of the Collective Bargaining Agreement (CBA).

       4.) Deduction for “facilities” furnished in addition to wages – An employer may deduct the reasonable costs of board, lodging or other “facilities” furnished to employees in addition to their wages. In some situations, employees may sleep and eat at the workplace, as may be true if they work in residential care facilities. Here, the employer may credit the costs of the room and lodging to comply with the requirements of the minimum wage law. The amounts that may be credited are prescribed by regulations and must be in writing and signed by the employee.

     “Facilities furnished to employees” might also include a company store. If employees buy items at the company store and “charge” it to their wages, the employer may deduct the cost of the item from the employee’s wages. However, the employer must maintain and preserve records substantiating these costs. Failure to keep cost records may bar such a deduction.

     There are, however, several express limitations on permissible deductions. The following may provide some helpful guidelines:

       1) No right of offset for employee's debts to employer – An employer is prohibited from deducting payment of a debt that an employee owed to the employer. Permitting the employer to offset the employee’s debt from the wages will allow the employer to bypass the legal system, violating the law against “prejudgment attachment.” The employer has the same recourse as all other creditors – which is to get an order from the court to have the debt paid.

     However, an employee may authorize an employer to withhold some amounts owed by the employee to pay a debt to an employer. The employee must acknowledge the debt in writing. This is allowed particularly when the employee had been making periodic payments on an agreed-upon basis. But if the employee is terminated before the entire debt is paid, the employer may not “accelerate” the balance. Rather, the employer may withhold from the employee's final paycheck only the periodic amount then due.

       2) No taking back of wages earned and paid – It is unlawful for an employer to collect from an employee any part of the wages that had already been earned and paid to the employee. However, the employer may take back overpayment of wages that had not been earned. Additionally, the employer and employee may agree that an employee’s final wage will be dependent on the occurrence of an event after the employee has done the work or where the employee has already received an advance payment. In such cases, the employer may set off, against future wage payments, any excess amounts previously paid. Such a system does not violate the prohibition on the employer's recapture of wages already earned or paid.

       3) No chargebacks for commissions fully earned – A commission chargeback may be unlawful where the commission was fully earned at the time of a sale (that is, payment was not an advance on commissions) and the employee has not agreed in writing to the chargeback. However, an employee who receives both wages and sales commissions may agree in writing to a chargeback against commissions advanced by the employer if the sale did not proceed (for example, the customer returns the merchandise). However, the employer may not charge back commissions on returned merchandise sold by other employees or when the selling employee cannot be identified. Employees cannot be made the “insurers of the employer's business losses.”

       4) No deduction for workers' compensation costs – An employer is prohibited from directly or indirectly taking any deduction from an employee’s earnings to cover any part of the costs of worker’s compensation.

       5) No deduction for business losses caused by employee negligence – Unless the employee was dishonest or willfully or grossly negligent, an employer may not deduct for ordinary losses caused by an employee. Losses due to an employee's simple negligence, such as cash shortages and breakage or loss of equipment, “are inevitable in almost any business operation” and must be borne “as expenses of management.” The employer can better absorb such losses or distribute them to a wider group (e.g., by passing cost onto customers or lowering wages of all employees). The law prohibits the employer from using an employee’s wages to shift the losses of the business to the employee.

     An employer who resorts to self-help and makes these deductions anyway does so at its own risk. If the employee is found not to have engaged in a dishonest, willful or grossly negligent act, the employee is entitled to recover the amount of wages withheld, plus any waiting time penalties due.

       6) No deductions for lost tools or uniforms – The Division of Labor and Standards Enforcement (DLSE) has indicated that a deduction for loss of tools or uniforms is allowed only if it can be proven that the employee stole the tools or uniforms or if there was “culpable negligence.” However, if the employee gave advance authorization, the employer may be able to deduct from the employee's paycheck the cost of tools and uniforms furnished by the employer in the event such items are not returned.

     Regardless of the size of one’s paycheck, deductions are a fact of life. The least an employee can do is make sure that wage deductions are allowed by law. If there are doubts, it does not hurt to ask for experienced legal help.

© Law Offices C. Joe Sayas, Jr.