Employers often act without thinking when taking deductions from employee paychecks for debts beyond tax withholding, employee benefit contributions and wage garnishments. An employee may owe his or her employer money for one or more of a number of legitimate reasons: pay advances, loans, lost or stolen property, taking paid leave in advance, taking recoverable draws. All are legitimate obligations for which an employer should have recourse.
What many employers do not understand, however, is that they cannot always simply dock employee paychecks to recover these debts, even with the employee’s consent. There often are procedural requirements.
Federal law, such as the Fair Labor Standards Act of 1938, places few restrictions on an employer’s ability to recoup this kind of debt. State law, on the other hand, is a different story. The restrictions, if any, on recoupment of these obligations vary widely from state to state and they can vary within such states depending on the nature of the obligation.
In Minnesota, for example, an employer must obtain from the employee written authorization to deduct money from wages due or earned by the employee for lost or stolen property, damage to property, or to recover any other claimed indebtedness running from the employee to the employer. And, the authorization must be made after the loss has occurred or the claimed indebtedness has arisen. No blanket authorization may ever be made in advance of the debt.
The authorization for deduction also must state the amount to be deducted from each pay period and that amount cannot be more than the amount subject to garnishment. Any agreement or arrangement that does not meet these requirements is void.
There are, however, exceptions. The statute does not apply when there is a (1) contrary provision in a collective bargaining agreement, (2) disciplinary rule for errors or omissions by for commissioned sales employees in the performance of their duties, or (3) purchases or loans from the employer and the employee voluntarily authorizes in writing that the cost of the purchase or loan will be deducted from the employee’s wages at regular intervals or upon termination of employment.
An employer who violates these compliance requirements is liable to the employee for twice the amount of the deduction or credit taken.
The written authorization need not be complained, just clear, and in the case of a loan or employee purchase paid over time, make sure to state that the final check may be subject to a larger deduction. Just make sure to double check the status of the law of the state of the employee’s residence. Different rules may apply, as in California, where being an employer is a brand new game.
Remember, if you dock your employees without following these rules, you could get sunk.