Legal and Illegal Employer Paycheck Deductions
Permissible and Impermissible Employer Deductions from Your Paycheck
It’s a common theme: your employer approaches you and says that he is deducting wages from your next paycheck. When you ask why, he or she says it’s because you did something wrong or because you owe money. Employees are often confused and frustrated by employer’s responses and actions in these situations. It is important to know your rights as an employee so that when faced with this situation, you understand exactly what type of deductions are permissible.
As a general rule, whether a deduction is permissible depends on whether the deduction will reduce an employee’s wage below the statutory minimum. In some cases, if the deduction results in the employee receiving net pay of less than the statutory hourly minimum, the deduction is impermissible. In other cases, deductions are permissible even if they reduce your pay below the statutory minimum. There are three types of deductions that every employee should be aware of, the first of which are Wisconsin specific.
Impermissible Wage Deductions
(a) Medical Examinations. Under Wisconsin law, an employer may not require an employee or applicant to pay the costs of a medical examination if required by the employer as a condition of employment.
(b) Faulty Workmanship and Lost or Stolen Property. Under Wisconsin law, an employer may not deduct wages owed to an employee for defective or faulty workmanship, lost or stolen property, or damage to property UNLESS the employee authorizes the employer IN WRITING to make that deduction.
The exception to this rule is if an employee is found guilty or held liable in court for negligence, carelessness, or willful and intentional conduct or if the employer and an employee representative (together) find that the faulty workmanship, loss, theft, or damage is due to employee negligence, carelessness, or willful and intentional conduct.
Permissible Wage Deductions - Conditional
The following deductions are allowed ONLY if the deduction does NOT reduce your net pay below the statutory minimum.
(a) Shortages. Deductions for cash register shortages resulting from errors or unaccountable circumstances are not permitted if wages are reduced below statutory minimum wage.
(b) Other debts to the employer. Even if an employer is an employee’s creditor, repayment may not be made by deductions that reduce the employee’s net pay below minimum wage. This type of situation is distinguishable from a situation where an employer advances wages to an employee. For instance, an employer may not make deductions to repair damage to a company car if it reduces an employee’s wages below the statutory minimum.
(c) Interest payments on cash or payroll advances. Interest payments on such payroll advances by the employer may only be deducted if they don’t cut into the minimum wage or overtime wages that are due to the employee.
(d) Uniforms and Uniform Cleaning. If a uniform is required by law, the employer, or by the nature of the work, the employer may not treat the cost of cleaning, buying, renting, or maintaining those uniforms as wages and therefore may not deduct the costs from employee paychecks if it reduces the amount of wages below the statutory minimum.
(e) Training Costs. An employer may deduct repayment costs for training where the deduction does not cut into the minimum wage.
Permissible Wage Deductions - Unconditional
The following deductions are allowed regardless of whether the deduction reduces your net pay below the statutory minimum.
(a) Taxes. Employers are permitted to collect the employee’s portion of federal, state, and local taxes and forward them to the appropriate authority.
(b) Payments to third parties pursuant to court orders. If ordered by a court of competent jurisdiction, an employer is legally obligated to pay an employee’s creditor, third party pursuant to a garnishment (example – child support), bankruptcy proceeding, wage attachment, trustee, etc.
(c) Payments to an employee designee or assignee. An employer may deduct money from an employee’s wages when an employee DIRECTS the employer to deduct a sum to be paid VOLUNTARILY to a third party. Examples include union dues for private sector employees (in Wisconsin), purchase of U.S. savings bonds, payment of health insurance premiums, repayments of loans, or voluntary contributions to churches or other charitable organizations.
(d) Shortages. If an employee admits to or is convicted of misappropriation of funds or theft, an employer CAN deduct wages even if it reduces the employee’s wages below the statutory minimum wage.
(e) Board, lodging, or other facilities: Under Federal law, in limited circumstances, an employer may make wage payments in a form other than cash or its equivalent. An employer is allowed to deduct the reasonable cost of facilities furnished to the employee from an employee’s total wages even if it reduces the employee’s wage below the statutory minimum wage. However, the facility must be of the type “customarily furnished” by the employer. This limits the types of employers who are permitted to make such deductions.
Under Wisconsin law, an employer may automatically deduct board, lodging, or other facilities of traveling sales crews if the amount does not exceed the fair market value of the board, lodging, or other facilities, and it does not include profit for the employer. Such deductions are only permissible if the traveling sales crew employee has previously authorized the deduction by signing a written disclosure statement that describes the board lodging and other facilities, and any costs to the employee.
(f) Cash or payroll advances. Where an employer makes a loan or advances wages to an employee, the principal may be deducted from the employee’s earnings, even if it cuts into the employee’s minimum wage.
(g) Unearned vacation. Courts have held that an employer may deduct the cost of a negative leave balance (i.e. unearned vacation taken) when the employee LEAVES employment even if it cuts into the employee’s minimum wage.
This list is not exhaustive. If you have questions or concerns about wage deductions, contact the offices of Hawks Quindel, S.C. for a free consultation.