Legal Implications of Wage Withholding
Just when can you withhold money from an employee's paycheck?
Q: Other than deductions required by law (for taxes, benefits, wage garnishments and the like), is an employer permitted to deduct money from an employee's earned wages? If so, under what circumstances?
A: Employers often ask whether or not they are allowed to withhold or deduct money from an employee's earned wages under certain circumstances, such as when an employee destroys company property, or when a terminated employee does not return company property or fails to repay a loan. The short answer is that there are typically some circumstances in which employers can withhold wages from employees. However, whether or not an employer can properly withhold wages in a given situation will depend on specific state law.
For example, in Arizona, an employer cannot withhold any portion of an employee's wages unless the employer has obtained written authorization from the employee for the withholding, or there is a reasonable good-faith dispute as to the amount of wages owed. As an example of what would constitute a permissible withholding, an employer may withhold the value of any company property that is not returned from a terminated employee's final paycheck, provided such deduction does not put the employee's wages below the minimum wage for that workweek, if that employee is nonexempt.
California law is even stricter. The general rule is that an employer can only withhold wages when it has obtained prior written authorization from the employee. Even with a written authorization, wages can only be withheld for specific items, as defined by the law. One example of a permissible withholding, when authorized in writing by the employee, is for the costs of tools or other items furnished by the employer that are not returned by the employee. The authorization for such a withholding must state the value of the tools and must provide that the employee agrees to return the tools, and that if he fails to return then, the employer is authorized to deduct the depreciated cost from the employee's wages.
In New York, an employer may only make deductions "for the benefit of the employee," which, aside from those required by law, are limited to those that are expressly authorized in writing by the employee. Even with an authorization, permissible deductions are very limited and specifically defined, and these deductions can amount to no more than, in the aggregate, 10 percent of the gross wages due to the employee for a particular payroll period. Examples of specifically prohibited deductions under New York law include deductions for spoilage or breakage, cash shortages or losses, and fines or penalties for lateness, misconduct or quitting without notice.
Employers must also look to state-specific laws regarding the timely payment of wages. If wages are not paid on time, this, too, can be considered an improper withholding.
In sum, the circumstances under which an employer may properly withhold wages vary from state to state. Therefore, before withholding any wages, be sure to check applicable state laws to ensure compliance, as improper withholding could lead to stiff penalties, including, in some instances, the entry of judgment against the employer for double or triple the amount of the improperly withheld wages, and payment of the employee's legal fees and court costs.
Note: The information in this column is provided by the author, not Entrepreneur.com. All answers are general in nature, not legal advice and not warranted or guaranteed. Readers are cautioned not to rely on this information. Because laws change over time and in different jurisdictions, it is imperative that you consult an attorney in your area regarding legal matters and an accountant regarding tax matters.
Larry Rosenfeld is co-chair of the national labor and employment practice of the law firm Greenberg Traurig LLP. A frequent writer and lecturer on employment law topics, Rosenfeld is experienced in the areas of federal laws pertaining to employment issues, EEOC, ADA, termination matters, employment liability and the Fair Labor Standards Act.