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Withholding Money From Former Employees' Paychecks

Small business owners know that employee turnover is inevitable. Most people don't stay in one job for life anymore. Employers must know what to do when an employee leaves a job owing money or property.

Can employers withhold money from former employees' final paychecks to recover losses to the business?

State and federal labor laws dictate what employers can and can't withhold from employee wages, including the final paycheck. Federal laws define what employers may do, but state laws tell them what they can do.

This article discusses what you can and can't deduct from your employees' paychecks, including the final paycheck.

To learn more, visit FindLaw's Wage and Hour Laws page.

Federal Law on Paycheck Withholding

The Fair Labor Standards Act (FLSA) allows employers to make paycheck deductions for unreturned company equipment, cash shortages, or damage to the employer's property. The only requirement under the FLSA is that these deductions don't reduce the worker's final pay below the federal minimum wage.

Employers can't use wage deductions to cover the cost of items that benefit the employer. In other words, an employer can't require workers to buy uniforms or equipment for use on the job and then deduct that cost from their paychecks.

Employers can usually write those costs off as business expenses. If the employer does want the employee to pay for some items, the cost may not cause the wages to fall below the federal minimum wage.

A few examples of things that might come out of an employee's paycheck include:

  • Uniforms: If state law or the job requires a uniform, the employer may deduct the cost of providing the uniform from the worker's paycheck. If the employer provides optional cleaning and maintenance of uniforms, they can deduct the cost from the employee's check. But they can't force employees to bear the cleaning costs.
  • Tools or other equipment: If needed for the job, get legal advice before making these deductions. Ownership of the property might become an issue if the employee purchases the tools or equipment.
  • Financial losses caused by the employee: This covers things like cash register shortages, theft, or property damage.

Employers can make other deductions under U.S. Department of Labor guidelines. Employees are still entitled to overtime wages even if the employer makes these deductions.

State Laws on Paycheck Withholding

As we discussed above, federal law allows for some types of paycheck deductions. But states can create their own rules to protect workers.

A few states follow FLSA requirements and let employers make deductions. Or they leave the decision in the hands of collective bargaining agreements. The majority of states do not allow deductions from any paychecks, including final paychecks.

In general, states don't permit deductions from final wages unless the employee previously consented to such deductions in writing. These restrictions apply whether the employee quits or is terminated for cause. A few states require a court order for employer withholding.

State Regulations on Payday Deductions

In the table below, you'll find general requirements for each state related to paycheck deductions.

State

Paycheck Deduction Rules

Alabama

No state law - FLSA requirements apply

Alaska

Deductions are not permitted unless the employee admits in writing to taking property

Arizona

Deductions are permitted only if:

  • State or federal law requires the employer to do so
  • The employee previously gave written consent
  • There is a reasonable, good-faith dispute over the amount of wages due

Arkansas

Employers may not deduct for things like breakage, cash shortages, etc. without notifying the employee

California

Not permitted unless the employee acted dishonestly, deliberately, or with gross negligence

Colorado

Advances, equipment, or property must have a written agreement for the deduction. Theft and retained property must be properly accounted for before the employer docks the employee's paycheck

Connecticut

Only with the employee's written authorization to the employer on a form approved by the Connecticut labor commissioner

Delaware

Not permitted

Florida

FLSA requirements

Georgia

FLSA requirements

Hawaii

Generally not permitted even with a written agreement

Idaho

Employee's written consent required

Illinois

Employee's written consent required

Indiana

Generally not permitted

Iowa

Allowed for incidents of willful or intentional disregard of employer interests

Kansas

Not permitted

Kentucky

Generally not permitted

Louisiana

Generally not permitted unless the employee's willful or negligent act caused the incident. Fines cannot exceed actual damages

Maine

Employers may not charge employees for any debt incurred by the employee in the course of work or for any costs considered primarily for the benefit of the employer

Maryland

Employee's written consent is required

Massachusetts

Not permitted

Michigan

Employee's written consent required

Minnesota

Permitted if the employee consents in writing after the mistake has occurred or the employee is held liable in court for damages

Mississippi

FLSA requirements

Missouri

FLSA requirements

Montana

Not permitted. The employer cannot require employees to pay for damages, mistakes, or shortages

Nebraska

Employee's written consent required

Nevada

Employee's written consent is required. If the employer attempts to withhold wages, the employer must have reason to believe the employee was responsible for a loss in the amount being withheld

New Hampshire

Not permitted

New Jersey

Not permitted

New Mexico

Employee's written consent required

New York

Not permitted

North Carolina

Employee's written consent is required. In criminal cases, employers may deduct sums if the employee is arrested. An employer must repay the employee if the employee is later found not guilty

North Dakota

Employees must authorize recurring or nonrecurring deductions in advance. Employer deductions for uniforms or equipment require the employee's written consent. The deduction cannot drop the employee's pay below minimum wage

Ohio

Employee's written consent required

Oklahoma

Employee's written consent required

Oregon

Not permitted

Pennsylvania

Not permitted

Rhode Island

Not permitted

South Carolina

Only permitted if an employee receives written notification of the policy on deductions upon hire. Employees must receive an itemized statement of any deductions

South Dakota

FLSA requirements

Tennessee

Employee's written consent required

Texas

Employee's written consent required

Utah

Employee's written consent is required, or the employer must present evidence justifying the deductions to an administrative law judge

Vermont

Generally not permitted

Virginia

Employee's written consent required

Washington

Employers can only make deductions from an employee's final paycheck. The employee's written or oral consent is required

West Virginia

Upon 10 days' written notice, an employer may withhold the replacement cost of any employer-provided property. Withholding is only valid if the employee has previously signed an agreement

Wisconsin

Employee's written consent is required after the loss and before the deduction OR if the employer and employee's representative (e.g., a union) agree the employee caused the loss, OR a court finds the employee guilty/liable

Wyoming

Permitted according to applicable statutes

State laws don't apply to court-ordered payroll deductions, such as wage garnishments for child support. Employers may deduct insurance premiums and pension contributions with the employee's written consent.

Laws for FLSA-exempt employees differ in each state. Employers should consult an employment law attorney with questions before attempting payroll deductions for reimbursement.

Recovering Unreturned Company Property

Employers should be proactive when it comes to recovering unreturned company property. All employees receiving company equipment should sign a separate "return of company property" document.

This document should explain what recourse the employer has if the employee fails to return company property in a timely manner after they leave.

Employers should discuss this option with an employment attorney to ensure they've followed all state and federal requirements.

Get Legal Help

Compliance with federal and state wage laws is essential. The DOL and state labor offices assess stiff penalties for violations of paycheck deduction laws. Employers should speak with an employment law attorney in your state before proceeding with any deduction.

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