Deductions and Withholdings
- Under the FLSA, it is unlawful to deduct or withhold amounts from an employee’s wages if such deductions:
- (1) Are primarily for the benefit or convenience of the employer; and
- Expenses that are commonly regarded as serving the benefit or convenience of the employer include required uniforms, mandatory tools or equipment, the cost of repairing lost or damaged materials, and employer cash shortages. By contrast, expenses such as taxes, health insurance premiums, retirement contributions, savings plans, credit union installments, savings bonds, union or club dues, uniform rental or cleaning not required by the employer, parking fees, charitable contributions, and loans to the employee are not typically regarded as serving the benefit or convenience of the employer.
- (2) Reduce the employee’s rate of pay below the minimum wage or owed overtime wages, if the employee is nonexempt.
- For example, if a nonexempt employee earns $8 per hour, an employer will be able to deduct up to $0.75 per hour without reducing the employee’s rate of pay below the $7.25 minimum wage under the FLSA. Accordingly, if the employee works 40 hours in a workweek, the employer may deduct up to $30 that workweek ($0.75 per hour x 40 hours worked). If the same employee works 20 hours in a workweek, the employer may only deduct up to $15 that workweek ($0.75 per hour x 20 hours worked).
- Further, as explained in the Overtime Exemptions section, deductions or withholdings from an exempt employee’s salary may affect their exempt status.
- State law may also regulate the permissibility of deductions and withholdings. For example, under the North Carolina Wage and Hour Act, the following employee authorization standards apply to all deductions and withholdings:
- (1) When an employer is required by law to withhold wages, such as in the case of payroll taxes or court-ordered garnishments, no employee authorization is needed.
- (2) When the amount or percentage of the deduction is known and agreed upon in advance, the following requirements must be satisfied:
- (a) The employee must sign a written authorization on or before the payday for the pay period from which the deduction is to be made;
- (b) The written authorization must indicate the reason for the deduction;
- (c) The written authorization must state the actual dollar amount or percentage of wages to be deducted;
- (d) If the reason for the deduction is a cash shortage, inventory shortage, or loss or damage to the employer’s property, the employee must receive at least seven days’ notice of the amount to be deducted before the payday on which the deduction is to be made. This requirement does not apply, however, in the event the employee’s employment is terminated; and
- (e) If the deduction is for the benefit or convenience of the employee (including savings plans and loans, among other categories described above), the employee must be given at least three days, from the date the employee receives notice of the actual dollar amount to be deducted, to withdraw authorization. By contrast, deductions for the benefit or convenience of the employer may not be withdrawn.
- (3) When the amount or percentage of the deduction is not known and agreed upon in advance, the following requirements must be satisfied:
- (a) The employee must sign a written authorization on or before the payday for the pay period from which the deduction is to be made;
- (b) The written authorization must indicate the reason for the deduction;
- (c) Prior to any deduction being made, the employee must (i) receive written notice of the actual dollar amount to be deducted, (ii) receive written notice of the employee’s right to withdraw authorization, and (iii) be given at least three days, from the date the employee receives either such notice, to withdraw authorization; and
- (d) If the reason for the deduction is a cash shortage, inventory shortage, or loss or damage to an employer’s property, the employee must receive at least seven days’ notice of the amount to be deducted before the payday on which the deduction is to be made. This requirement does not apply, however, in the event the employee’s employment is terminated.
- (4) The above requirements do not apply in the event of:
- (a) An overpayment of wages as a result of a miscalculation or other bona fide error;
- (b) Recoupment of wage advances made at the employee’s request;
- (c) Repayment of the principal amount of a loan made by an employer to an employee (the aforementioned requirements do apply for interest and other charges on a loan); or
- (d) Upon an employee’s arrest, indictment, or other involvement in criminal process for reasons relating to a cash shortage, inventory shortage, or loss or damage to an employer’s property, if the deduction is made to recoup the amount lost as a result thereof (though any deduction needs to be paid back to the employee if the employee is ultimately found not guilty).
