Benefits and Compensation

Employee Pay Deductions: What Can (and Can’t) Be Deducted?

Pay Deductions: What Can and Can’t be Deducted?

Q. Is it possible to deduct expenses from an employee for drug screens and physicals if they leave within the 90-day probationary period?

A.That is something that is a function of state law, generally. Most state laws say that if an employer is going to require a drug screen, or if an employer is going to require a physical test or medical test, that the employer is the one required to pay for that.

Q. For non-exempt employees, if we provide uniforms and the employee leaves but does not return the uniforms—are we allowed to deduct from these from their last paycheck? Do we need to have them sign off on this in advance?

A.This situation is somewhat similar to a cash or inventory shortage situation. So, for this nonexempt employee, if reducing their last paycheck to recover this would take them below minimum wage, then you cannot take that deduction. On the other hand, if you have this deduction and it would not cause them to be below minimum wage, you should be able to do it. Whether or not they have to sign off and agree to this is a function of state law. I would recommend having a policy that an employee signs at the beginning of employment or at the time they receive the uniforms to explain what will happen. Check your state law to see what you must do.

Q. What about other charges, such as “no show” charges for hotels or tickets received while an employee was driving a company car?

A.Those sorts of things that are also going to be treated very similarly to recovering for cash shortages or damaged inventory. Use the rules related to cash shortages. It’s always a good idea to have these types of things spelled out and agreed to in advance with the employee, so that the employee understands that these types of actions (tickets while using a company car, etc.) will result in a deduction from payroll. If it happens, have it signed off by the employee. Either way, treat them with the same rules as a cash or inventory shortage.

Pay Deductions: More Information

Q. We want to be sure our deductions do not make the employee’s pay fall below minimum wage, but how do you calculate minimum wage if the employee is paid by the piece (For example: retail commissions or truck drivers who are paid by the mile)?

A.The Fair Labor Standards Act provides for how you calculate minimum wage for people who are paid by the piece or who are commissioned, etc. You may already have it because you should be calculating overtime, for example, using a standard rate that is determined to be their wage rate. Knowing what their base wage is will help you see where it stands in relation to minimum wage.

For more information on legal employee pay deductions, order the webinar recording of “Pay Deductions Explained: What You Can and Can’t Legally Deduct from Employees’ Pay.” To register for a future webinar, visit http://store.blr.com/events/webinars.

Attorney Sharolyn Whiting-Ralston of McAfee & Taft is a trial lawyer whose practice is primarily focused on labor and employment law and general civil and business litigation.