Payroll processors, you know deducting money from an employee’s paycheck is a touchy subject. Determining the type of worker you are dealing with is job one. Some worker classifications carry little room for docking money from pay. Today I will discuss this question and give a variety of items to consider before deducting any money your employee has earned.
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EPISODE 6: WHAT CAN BE DOCKED FROM AN EMPLOYEE’S PAY?
Small Business Spoonfuls is a twice a week Q&A with Lisa Smith providing answers to the questions you have about running your small business. Welcome, one and all. I m Lisa Smith and this is Small Business Spoonfuls, Episode No. 6. I am having such a great time with this podcast and I am so tickled to death that you guys are tuning in and listening and getting great information that is helping you in your business. Thank you so much for all the support and love that has just been piling in. That is awesome. Today s question for our spoonful is one that employers fight with all the time. It doesn t matter if you are a small employer or a large employer, the rules are all the same for you.
What can I dock from my employee s paycheck? The answer to this is very complicated and confusing. Here are a few things that you have to identify before you can actually get to the answer. You have to identify if we are talking about an employee that is exempt from minimum wage and overtime and that is on a salary.
You have to identify if we are talking about an employee that is exempt from minimum wage and overtime and that is on a salary.
Are we talking about an employee that works for an hourly or daily rate and if they go over 40 hours in a 7 day work week, they get time and a half or whatever the overtime law is in your state. Because if we are talking about workers who are exempt, then the Department of Labor has made it very clear that we can almost never touch their money. There are a few exceptions to that rule. We talked a little bit about that, I think in Episode No. 1. Go back and listen to that one if you have not heard it yet. I do cover a few points on that. We have a really, really great Lunch and Learn that we have recorded and we are making it available now as sort of a mini course. It is really wonderful and it normally sells for a couple hundred bucks. If you go to beauditsecure.com it is like $97.97 or something to that nature. Really, really good course and it will go through in a great level of detail some of these items.
Just for the short answer, just for the spoonfuls today, just for exempt employees, I would just almost say never. There are a few instances that you can, but if we are talking about docking for things like damaging equipment, maybe they broke the laptop you just gave them, maybe they dropped it in the swimming pool, probably not. Whether they are hourly workers or salaried, either way, the answer to that question is going to be probably not. Generally, most states, and I m going to say almost all states. I just hate to use that word all, but the majority of the states have this point of view that if you are making a deduction that is to the benefit to the employer and/or penalizing the employee, it is probably an off limits deduction.
There are very few breaks that you get on that. For instance, in some states they do let you deduct for breakage or missing money or something like that if you can prove it was malicious behavior. Other states will say we don t care how it happened or where it happened. We are not going to go there with you. Or they are completely silent on the matter, meaning you need to get some legal counsel to find out in this particular situation, would it be okay. Normally, that is going to tie back to theft or there was a big knock down drag out at work and somebody threw somebody else out the window and you want to charge the person who threw the guy out the window.
It might be something like that which you would have to pursue through legal or law enforcement type channels. Here s the deal, no matter what you can and cannot deduct, you can never drop your hourly worker below the minimum wage in your state. At least $7.25 an hour but maybe you are in a state that has $12.00 or $15.00 an hour or you are in a city that has a higher minimum wage. Then you are going to be in a little bit different boat. Watch out for those kind of pitfalls as well. You may look like you should be able to take this money and then you get thrown out. I will give you an example. I was teaching a class in Texas about a month ago.
This guy said, Lisa, I m going to tell you a story and then I want you to go tell this to everybody. It was really quite frightening. In Texas, he said he had no idea and I haven t gone to look this up but I can tell you this is the way the Judge ruled. In Texas, apparently, if a company loans an employee money to purchase anything, a vehicle or whatever it might be, then you do a wage deduction to pay that money back, you have a signature, they ve signed it, they agree that money is coming back. His judgement said that was illegal. I ll tell you how this happened. They loaned this employee $6,000 to go buy a car.
The employee pays part of it back through wage deduction, about $3,000 of it, so almost half of it back, through wage deduction and then quits the company. They try to get the money and the person says, no, I m not making any more payments. They take the employee to court and not only do they lose in court, but they lose big. The judge said in Texas, you cannot take a wage deduction for this loan. You would have to pay the worker and then the worker would have to make the payment back to you. That may be a creditor deduction type law. I did not look into it. He just told me the story and I thought oh my goodness.
That s my bad for not having checked out the details before telling you the story, but this was his side of it. Not only did they lose, they also had to write her a check back for the $3,000 or so that she had already paid on the car, so they lost the entire $6,000 and she got a new vehicle for free. That just blew me away. Watch out, because when we say don t do it if it s not to the benefit to the employee because that may not hold up in every state. If you are viewed as a creditor in a particular situation, then in a creditor s garnishment of wages or assignment of wages may not be allowed. I don t know.
If the worker said, well, they told me that s the only way they would loan me the money is if I signed to have it on a wage deduction, so I said okay. That could have broken the case, too, that s called coercion. That s basically saying we are going to coerce you into letting us draw this money out of your check every month, so sign here or you don t get what you want from us. That would also be a thing if they had loaned money to other people in the past and not required them to do a wage deduction for that money. Like I said, I don t know his entire court case. I don t know his entire story. There could be many things that will affect that situation in your state.
Really make sure you check all of that information out where you live. It is going to be different in Texas and California and Georgia and everybody may have a different thing going on. Make sure you know. There are some things that are really standard and there are very few states that would allow you to deduct for breaking equipment or losing equipment or something like that. People say well, it s in our policy that says they sign here when they come to work and if they don t return this or they break this, they are going to pay for it. If that is legal in your state, that would be fine. You could never drop that employee below minimum wage.
You cannot withhold their last paycheck until they pay. You can t do any of those kind of things. Even if your company policy says we are going to do this and they sign off on the policy agreeing to it, it still may be illegal because if your state doesn t allow it to happen in the first place, you can t have an employee sign away their right to fair treatment under the law. That is what it looks like to a court if that would be going on in an illegal state. Well, they signed it, we both agreed so it s okay since we both agree. No, people can agree on a lot of things that are illegal. This is one of those kind of situations we really have to vet and make sure we understand. Watch out for that.
Now of course deductions that come through like garnishment for child support order and health insurance, medical coverage and you take that out of the paycheck. That s all fine. Nobody has any problem with that. It s when we get into the other type of kind of gray areas that we really want to watch out and know what our state says about that. We have a lot of state by state information at beauditsecure.com. Most of you who are members already know this but if you are not a member, it is a great place to go to get good information on state level stuff. We constantly add to it. We are actually coming out with a book probably in the next 8 weeks. It is in final editing right now. It s a guide to employment law for all 50 states
It is in final editing right now. It s a guide to employment law for all 50 states and of course, the District of Columbia and we are working on Puerto Rico. We will have that one out probably by at least the end of the year. We are going to have the 50 states plus DC out in the next couple of months. That s pretty exciting. Please come, stop in, join our free content library, get on our update list so when that book breaks, you will know. Of course our members are going to get notice first and they will get a huge discount on the book and if they want it for their state or if they want the whole US or a region, you will be able to buy it a variety of different ways.
They will get a huge discount and everybody else will pay regular price. Anyway, stay tuned because that is awesome stuff. For employers that have employees working in a variety of states, you know you have to follow the rule of the state your employee works in, not the rule of the state that you are based in. That is very important to remember as well. It could be different for every employee if you had every employee working in a different state. Know what you are allowed to do on all fronts of employment law, but for this little spoonful, your deductions. The last thing you want is the Department of Labor coming in and saying you have been taking money out of people s paychecks. At that point, that maybe could almost be considered theft. It may not be labeled that way, but it is going to be harsh and there are going to be penalties involved and a lot of repaying to do. Take a lesson from the guy in Texas who had to basically give the woman a free car. You don t want that to happen to you in your business.
This is the time for the section we call HR Superstar. The winner of HR Superstar for today s podcast goes out to Revenge, the TV series for the last 4 years or so. Revenge has just been one of my favorites and now it has wrapped and it is gone from our lives. It did not leave from our lives without one really good HR moment. That HR movement is brought to you by the character called Nolan Ross and if you have watched the show, you will remember Nolan is this billionaire hacker guy who runs this big tech company. Towards the end he ends up buying the Beach Club that everybody hangs out at. So he runs the Beach Club.
Then Jack, Jack Porter is the guy that s known Amanda, or Emily Thorn, since she was a little girl. He ends up, his bar burns down. He needs to get a job. He doesn t want to do the police force thing anymore. He goes to work as a bartender for Nolan Ross at the Beach Club. He is going to have to quit. At some point he says I m going to have a quit because I ve got a kid and it s not working out with my child care situation. What does Nolan Ross do as a very wonderful, conscientious employer, he says well that s not a problem. We will just set up a day care center here at the club and all the employees can take advantage of that as a benefit and your problem is solved and I can keep you on as an employee. Jack is like, oh my gosh, that s wonderful. Thank you so much. They have this whole day care thing going on at the Beach Club. How wonderful is that. That is something that Nolan Ross didn t have to do.
That is something that no employer has to do. It does bring us back to being willing to accommodate our employees to the level that is considered reasonable. For a lot of businesses, the expense involved to set up a day care center, the price would not be considered reasonable. When you are a multi billionaire guy who just bought the Beach Club as a toy, then sure, let s do a day care center. What s it going to hurt? There s plenty of money there. That was a reasonable accommodation for Nolan Ross, might not be one for other businesses. The point is here, what can you do to keep the good workers that you have, right? He didn t want to lose Jack, so he accommodated him. He knew it was going to cost him more to replace a guy like Jack, than it would be probably to spend the time and money having someone put together the day care. Kudos and thumbs up to Revenge for writing in such a beautiful HR moment. There you go. That s our winner for this week. Revenge brought to you by Mr. Nolan Ross.
Alright, guys, that is it for today. Thank you for tuning in. Until next time, be audit secure. I am Lisa Smith and I am out.
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