Lawful and Unlawful Payroll Deductions-Are You in Compliance?
Surprisingly, we get a significant amount of inquiries regarding payroll deductions. An employer can lawfully withhold amounts from an employee’s wages only when: (1) required or empowered to do so by state or federal law; (2) when a deduction is expressly authorized in writing by the employee to cover insurance premiums, benefit plan contributions or other deductions or (3) when deductions cover health, welfare or pension contributions is expressly authorized by a wage or collective bargaining agreement. Although a wage garnishment is a lawful deduction from wages an employer cannot discharge an employee because a garnishment of wages has been threatened or if the employee’s wages have been subjected to garnishment for the payment of one judgment.
The ability of employers to deduct amounts from an employee’s wages due to cash shortages, breakage, or loss of equipment is specifically regulated by the Industrial Welfare Commission Orders and limited by court decisions. In addition, there have been several court decisions that significantly restrict an employer’s ability to offset against an employee’s wages. Balloon payment on separation from employment to repay employee’s debt to employer is an unlawful deduction even where the employee authorized such payment in writing. Taking this one step further just because an employee authorizes a deduction from payroll, if the deduction is for unlawful reasons, it does not matter that the employee authorized it in writing. It is still an illegal deduction.
Other unlawful deductions include:
Gratuities: An employer cannot collect, take, or receive any gratuity given or left for an employee, or deduct any amount from wages due an employee based on that gratuity (for our hospitality clients!).
Photographs: If the employer requires a photograph of an applicant or employee, the employer must pay the cost of the photograph.
Business Cards: Employers cannot charge the employee for the first set, or any set, of business cards.
Uniforms: If the employer requires a uniform to be worn by an employee, the employer must pay the cost of the uniform including cleaning (if it needs to be dry cleaned). If you take a deposit it must be put in a separate interest bearing account in the name of the employee otherwise the deduction will be treated like wages.
Expenses: An employee is entitled to be reimbursed by his or her employer for expenses or losses incurred in direct consequence of the discharge of the employee’s work duties.
Medical Record: An employer cannot require an employee or applicant to pay for a medical examination or deduct from an employee’s wages the cost of a medical examination taken as a condition of employment or required by any state or federal agency.
Finally, if you are not sure if a deduction is not lawful please call us! The penalties are very stiff.