We are often faced with questions concerning what deductions an employer may make from an employee’s pay check. Confusion concerning the law is not surprising given the discrepancies between the federal law – the Fair Labor Standards Act (FLSA) and the Texas Payday Law. The FLSA covers deductions from the wages of a minimum wage employee that cause the employee’s wages to drop below the minimum wage. The Texas Payday Law covers deductions from wages for all employees.
Without written authorization from the employee, The Texas Pay Day Act allows an employer to make deductions only if they are ordered by a court (child support payments) or authorized by state or federal law (income tax withholding). All other deductions must be in writing and signed by the employee.
The FLSA covers deductions that can lawfully bring an employee’s wage below minimum wage. Under certain circumstances the following items may lawfully cause and employee’s wage to drop below minimum wage:
1. Meals and lodging provided to employee as long as the employer doesn’t profit from the meals and lodging;
2. Tip credits – tipped employees can be paid less than minimum wage;
3. Voluntary wage assignments may be deducted by the employer, typically for contributions to retirement plans, deduction for health insurance etc.;
4. Repayment of loans and wage advancements;
5. Cash shortages due to misappropriation;
6. Court ordered or statutorily authorized deductions.
Note that only the court ordered or statutorily authorized deductions from the above list can be deducted from an employee’s paycheck without prior written consent. It is generally recommended that employers obtain authorization for the deduction of these expenses at the time of hiring along with the completion of all other documents required by law. It is important that the authorization agreement is not overly broad, but still adequately covers the likely deductions that and employer may need to make from the employee’s wages.
Also remember that even if an employee agrees to the deduction, the deduction may not make the employee’s wages fall below the minimum wage unless authorized by the FLSA.
THE TAKEAWAY: Before making deductions from an employee’s wages, you must first consider whether the deductions are authorized by federal law or a court order. If the deduction are not authorized you must have an agreement signed by the employee. Finally, you must consider whether the deductions would result in the employee’s wages dropping below the minimum wage.
The Texas Workforce Commission provides a sample Wage Deduction Authorization Agreement on its website – Click Here.
– The Business Team
Scott | Josh | Jeremy