What Employers Can (and Can’t) Deduct from an Employee’s Paycheck

Posted on Jun 28, 2018 by

Employers often ask if they are able to deduct from an employee’s wages the cost of employer property, equipment and/or materials that have gone missing, were damaged, or that needed to be scrapped or repaired due to an employee’s carelessness, negligence or intentional actions.  This question frequently arises when the employee quits or is terminated, and the employer wants to withhold all or part of the employee’s final paycheck.

State Limitations on Wage Deductions

Employers need to be aware that there is a Wisconsin law that limits an employer’s rights in this situation.  Wisconsin Statute §103.455 places strict limitations on an employer’s ability to deduct amounts from an employee’s earned wages due to defective or faulty workmanship or for lost, stolen or damaged property.  The statute reads, in part:

“103.455  Deductions for faulty workmanship, loss, theft or damage. No employer may make any deduction from the wages due or earned by any employee, who is not an independent contractor, for defective or faulty workmanship, lost or stolen property or damage to property, unless the employee authorizes the employer in writing to make that deduction ….”

In order for an employer to make a lawful deduction, the employer must obtain written consent from the employee for the deduction, and the timing of that authorization is critical. The employee must provide written authorization for the deduction after the loss or damage has occurred and before the wage deduction is taken. Donovan v. Schlesner, 72 Wis. 2d 74, 240 N.W.2d 135 (1976). This means that an employer cannot rely on a blanket authorization obtained from the employee in advance or on a general policy statement that deductions will occur to make a legal wage deduction. Moreover, any agreement between the employer and the employee to avoid the requirements of §103.455 is void.[1]

The damages for improper deductions from earned wages are significant. An employee may recover twice the amount of the wrongful deduction in a civil action commenced against the employer.  If an employer terminates or takes some other adverse employment action against an employee for challenging the legality of a deduction, the employee can bring a claim against the employer for retaliation.  (See Wis. Stats. §111.322(2m)).

Repayment for Owed Obligations

Employers have more flexibility in making deductions from wages for repayment of obligations owed by the employee to the employer.  However, it is important for the employer to adequately document the employee’s debt and repayment obligation to ensure that the deduction will fall outside of the limitations imposed by Wisconsin Statute §103.455.

Federal Limitations on Wage Deductions

The federal Fair Labor Standards Act also imposes limitations on an employer’s ability to make deductions from employee pay.  The Fair Labor Standards Act is the federal law that governs minimum wage and overtime pay for employees.

Under federal law, an employer cannot make deductions from the pay of hourly, non-exempt employees for the cost of items considered to be primarily for the benefit or convenience of the employer, if the result would be to reduce the employee’s wages below the required minimum wage or overtime compensation.

Examples of deductions for items considered to be primarily for the benefit of the employer include:

  • Deductions for damaged or lost tools or equipment used in the employee’s work;
  • Deductions for damage to the employer’s facility or property;
  • Deductions for cash register shortages;
  • Deductions for theft of the employer’s property; and
  • Deductions for employee uniform expense

Deductions taken in these circumstances are not legal if they have the effect of taking an employee’s earned wages below the required minimum wage for hours worked, or if the deduction results in the employee not being paid “time-and-a-half” for overtime hours worked.  (See U.S. Department of Labor, Fact Sheet, #16).

How Employers Can Comply

Wisconsin employers must comply with both state and federal laws regarding wage deductions. Putting the requirements of state and federal law together, for a legal deduction to occur, these requirements must be met:

  • The employer must obtain the employee’s written authorization after the loss or damage occurs and before the time the deduction is taken, and
  • The deduction cannot result in the employee being paid less than minimum wage for hours worked and/or less than “time-and-a-half” for overtime hours worked.

State and federal law also impose limitations on an employer’s ability to make deductions from the weekly salary of exempt employees, and those limits will be addressed in a future blog article.  McCarty Law’s labor and employment attorneys stand ready to assist you in navigating the limitations and requirements imposed by law for employee wage deductions.

[1] The statute allows deductions from an employee’s wages without the employee’s prior written authorization where the employer and a representative designated by the employee determine that the loss, theft or damage was the result of the employee’s negligence, carelessness, or willful and intentional conduct, or the employee is found guilty or held liable in court for that negligence, carelessness or willful and intentional misconduct.

 



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Rebecca L. Kent

Employment & Labor Law and Commercial Litigation Attorney at McCarty Law LLP
Becky assists businesses as they confront the legal questions and challenges that arise each day in the area of human resources. She provides legal services in the areas of employment and labor law and represents clients in employment and business-related litigation.