Withholding pay from an employee is serious business; there are strict protections governing fair wages and employee’s rights. Withholding pay is different from Court ordered Garnishment of wages which will be discussed in a later blog. In most cases, any withholding deductions made from an employee’s pay are required to a) be consented to by the employee and b) be for the benefit of the employee. However, employers are also authorized to withhold wages based on legal authorization.
What can legally be deducted from a paycheck?
Legal deductions from pay fall into two categories, though it must be understood that these rules can vary from state to state. Generally, the first type of legal deduction protects employees from earning less than the minimum wage. Employers may require employees to pay for uniforms, tools, equipment, and even cash shortages or breakage as long as the employee’s wages don’t fall below minimum wage after the deduction.
If your company provides lodging and meals for workers, the rules can be different (albeit, they still vary from state to state). Employees can take home less than the minimum wage after deductions for food and lodging provided it is for the benefit of the employee, customary in the industry, and only a “reasonable cost” is deducted.
Can I withhold pay to an employee who owes the company money?
It depends. If your company offers your employee a loan, such as an advance on his or her salary, then the company can withhold money to pay itself back – even if doing so causes the employee’s earnings to fall below the minimum wage. However, like with all things, each state’s laws are different: some may require these agreements in writing, whereas some may not allow them at all. In Ohio, even if your employee has agreed to a specific repayment plan, you may be limited by minimum wage laws
Most laws governing deductions from pay are in place to protect employees’ rights. As such, it’s always a good idea to consult with a lawyer when you are considering payroll deductions or withholding pay completely. A misstep in payroll can have massive legal ramifications for both you and your company.
Gertsburg Licata is a full-service, strategic growth advisory firm focusing on business transactions and litigation, M&A and executive talent solutions for start-up and middle-market enterprises. It is also the home of CoverMySix®, a unique, anti-litigation audit developed specifically for growing and middle-market companies.
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.
