Library – Employment Law
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
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
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
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
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
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
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.