Quite often I will get asked by employers if it is okay to deduct certain items from either an employee’s payroll or a final paycheck. In fact, in almost every termination that I walk a client through, this issue comes up – whether it is an outstanding credit card payment (the trouble employee was reimbursed months ago but still hasn’t paid the company’s card off), uniforms not returned, or other items “held hostage” by the employee that certainly has a value. While there is a bit of arm wrestling that needs to take place – it can be done!
Minnesota’s Wage Deduction Laws
In Minnesota, there are only limited permissible deductions an employer can make from an employee’s paycheck without the employee’s permission. Minn. Stat 181.79. Specifically, an employer can’t deduct an employee’s pay “for lost or stolen property, damage to property, or to recover any other claimed indebtedness” unless the employee voluntarily agrees in writing to the deduction after the loss has occurred or the debt arisen. Note the word “voluntary” is very important – it is likely not voluntary if it is a “sign here or lose your job” option.
Certainly, “normal” payroll deductions can be made if acknowledged in writing such as paying union dues, life insurance premium, health insurance, dental insurance, contributions to local arts councils or science counsel, political action committee, or membership dues of certain relief associations. Minn. Stat. 181.06.
Exceptions to the Rule
Of course lawyers love exceptions to rules. There are exceptions to the above for employees covered under a collective bargaining agreement (union employees) so we need to put those folks aside for now. Commissioned salespeople also have unique circumstances related to deductions, which is a topic for another post. Another exception to the above rule – an employee may agree to deductions for a loan or purchase (before the loan or purchase is made) from an employer if voluntarily agreed to in writing. Finally, no surprise here, but deductions may be made as a result of a Court order.
A final quirky deduction fact (I know, and it’s not even my fun fact Friday!) – employers can deduct up to $50 from an employee’s wages (without prior written permission – though it would be best practices to acknowledge it in a writing signed by both parties) for the following:
- Purchased or rented uniforms or specially designed clothes required to do the job (and which wouldn’t generally be worn outside of work)
- Purchased or rented equipment used to do the job (but not tools of a trade, car or other equipment used outside of employment)
- Consumable supplies required to do the job
- Travel expenses (except those incurred traveling from work to home)
Minn. Stat. 177.24. However, the $50 (or whatever less was deducted) must be paid back to the employee at the time of termination. If the employer pays for any of the above and/or reimburses the employee full for it, the employer may require the employee to surrender those items at the end of employment. Accordingly, another best practice is to have a list of what the employee was provided at the beginning of his or her employment (and updated as appropriate) – signed by both the employer and employee – noting whether a deduction was made and in what amount. Thus, at the end of employment there is no dispute who owns the iPad, laptop, polo, cell phone, etc., and whether the $50 is owed back to the employee.
The Employee Agrees to a Deduction – Now What?
Let’s say the employee acknowledges the past debt (remember, the authorization has to be for a debt already occurred), now what? Well, don’t forget that any deduction made cannot drop the employee’s wages below minimum wage for that workweek. Accordingly, it is a good idea once the employee has agreed to the deductions, to set forth what payroll(s) the deductions will be made, and in what amount, showing that minimum wage will always be met. In addition, no deduction can be more than the amount allowed for garnishment or execution on wages – so be careful if the employee has numerous deductions and other garnishments such as child support – I have seen it where an employer could not deduct anymore given the priority in garnishments, etc. What’s that all about? Yet another post…too much to digest it all here. Basically, if you have a large sum to deduct, you can only deduct a certain percentage of a person’s paycheck at any one time (but it’s much more complicated than that) and so you need to review those rules if that occurs.
What if the Employee Refuses to Authorize a Deduction?
Well, you now know that you can’t mess around with an employee’s wages outside of what is detailed above (generally). So, what’s an employer to do? Discipline. Too often employers forget that an employee may be disciplined for theft, losses, faulty workmanship, etc. (it just can’t then be in the form of a payroll deduction). So, while the employer will not recoup that money through a payroll deduction, certainly there are other non-monetary ways to get the point across.
Deductions Under the FLSA
We can’t forget about federal laws. Similar to Minnesota, again, an employee’s wages can never go below minimum wage. The FLSA does not consider uniforms or other items “primarily for the benefit or convenience of the employer” to be included as wages, and thus, the value of those items can’t be counted towards meeting minimum wage (or overtime) obligations. However, an employer may deduct the cost of uniforms over multiple payrolls so long as minimum wage is met (and, by Minnesota law, the employee voluntarily authorizes the deduction).