Federal Employment Law Deductions Labor by fhz16141


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									                                    Deductions from Pay

General Policy
All deductions from an employee’s wages shall be in accordance with applicable law and, when
required, the employee’s consent.
   Deductions will be made from employees’ wages in the following order:
   1. Social Security taxes
   2. Federal and state income taxes
   3. Amounts owed to the Company
   4. Child support
   5. Garnishment
   6. Assignment of wages (if allowed under state law)
   Employees are to be notified of deductions due to court orders, such as child support or
garnishments, in accordance with such orders.
   No deduction from an employee’s wages for any period shall cause the employee’s wages for
any such period to be less than the wage required to be paid by the company pursuant to
applicable law.
   No deductions from exempt employees’ salaries are permitted, except as allowed by
applicable law. The permitted exceptions are:
      The items listed in item 2 above.
      When the employee has signed a written consent (see item 10 on following page)
      Deductions when an exempt employee:
        --Is absent from work for 1 or more full days for personal reasons other than sickness or
        --For absences of 1 or more full days due to sickness or disability if the deduction is made
        in accordance with the company’s policy of providing compensation for salary lost due to
      To offset amounts employees receive as jury or witness fees, or for military pay
       For penalties imposed in good faith for infractions of safety rules of major significance;
      For unpaid disciplinary suspensions of 1 or more full days imposed in good faith for
       infractions of workplace conduct rules.
   • The full salary in the initial or terminal week of employment is not paid if the exempt
employee does not work a full week. Instead it will be prorated.
    • The fully salary of an exempt employee is not paid for weeks in which the exempt
employee takes unpaid leave under the Family and Medical Leave Act. Instead, it will be
   Examples of improper deductions include:
      Any deductions from the employee’s compensation for absences caused by the company
       or by the operating requirements of the business
      If the employee is ready, willing, and able to work, any deductions made for time when
       work is not available
      Any deduction for a partial-day absence, such as attending a parent-teacher conference
      Deducting three days of pay because the employee was absent from work for jury duty,
       rather than merely offsetting any amount received as payment for the jury duty
4. Deductions not taken for any pay period may be carried over to succeeding pay periods and
deducted from the wages due in the succeeding pay period to the extent allowed by law.
5. Because assignment of wages is not permitted in this state, no deductions shall be made for
such an assignment.
6. Deductions for the United Way will be permitted after the employee completes the required
7. Payroll deductions shall not be authorized for the purpose of collecting dues for membership
or participation in any organization.
8. Employees are to be notified of all deductions.
9. Employees who object to any deduction, such as deductions due to an absence, deductions for
an advance, a garnishment, or child-support order, are to contact the Human Resources director. If
the employee and the Director cannot resolve the matter, the dispute will be referred to the legal
department. The company will promptly correct any deductions made in error or not permitted by
applicable law.
10. Employees must consent in writing to the following deductions:
   — Payment of group health insurance
   — Contributions to a retirement plan
   — Repayment of purchases made on credit from the company
   — Repayment of payroll advances and/or overpayments
   — Educational loans
11. Employees shall be required to complete all applicable forms necessary for deductions as may
be required by law; such forms include the federal W-4. If an employee does not complete form,
e.g., the federal W-4, then deductions will be made in accordance with applicable law.
          Employees are expected to report to the Human Resources director any violations of this
       Improper deductions are a violation of company policy and may result in discipline up to
and including termination.
       This policy will be provided to all new hires, placed in the employee handbook, and
posted on the company’s bulletin boards and intranet.
       This policy will be revised and applied so that the company is always in compliance with
applicable law.
        The Human Resource director will review this policy at least annually (and upon notice
that the law has changed) to ensure compliance with applicable law.

         Assignment of wages is permitted in this state. The employee is expected to furnish the
          company with a copy of the assignment at the time it is executed.
         The company has a payroll practices to deduct partial day absences from exempt
          employees accrued leave accounts.
         All employees are required to sign the following consent to payroll deductions:

• General statement of policy. Include a general statement of your policy concerning
deductions. Such a statement can contain your goal of making only those deductions that are
lawful and consented to by the employee. State that errors will be promptly corrected.
• Illegal deductions. Include a statement that you will not make deductions that are unlawful.
Examples of such deductions include: reducing an employee's wages below the minimum wage
because of damage to a vehicle, lost merchandise, or cash handling errors.
• Complaint policy. Establish a mechanism for employees to complain about improper
deductions and to promptly correct them.
• Taxes. State that you will make tax deductions from an employee’s wages based on
applicable law and instructions from the employee. As an example, require each employee to
complete a W-4 form for withholding federal income taxes. If an employee fails to complete a
W-4, then your policy should state that you will withhold in accordance with applicable federal
law, which generally requires withholding as if the individual was single with no dependents.
• Benefit deductions. Describe how you make deductions for benefit payments such as group
health, dental, pension deductions, and the like. As an example, if there are insufficient funds in
any one paycheck, perhaps due to a child support order, is the employee to pay for the benefit or
will you simply advance the money and deduct the advance from the next paycheck?
• Garnishment. Describe the steps for withholding money from employees’ wages when they
are garnished. Among these steps, include notice to the employees of the fact that garnishment
has occurred. There are a growing number of statutes, both state and federal, that permit
garnishment. State that you will comply with applicable garnishment laws. These laws can also
prohibit taking any action against an employee based on the fact of a garnishment. Additionally,
these laws may permit you to charge a small fee to cover some of the costs of the paperwork
• Child support. While child support deductions are similar to garnishment, there may be
some differences. As an example, child support payments may need to be deducted prior to a
garnishment by a creditor. Additionally, the amount subject to a child support deduction may
vary greatly from the amount subject to garnishment.
• Payroll advances and loans. If your company makes loans or payroll advances to
employees, coordinate that policy with your policy concerning deductions from payrolls. As an
example, you may want to require the employee to repay any advance through payroll deductions,
and the advance deduction may need to be placed ahead of benefit deductions. Generally, you
should obtain written consent from employees to deduct payroll advances or loans from their
• Order of deductions. Detail in your policy the order in which deductions are to be made. As
an example, will you require the employee to first repay loans to you before the employee can
make a contribution to a retirement plan?
• Bad checks. If you permit employees to cash checks through your accounting department,
coordinate that policy with your deductions from wages. For example, if a check from an
employee should turn out to be a bad one, you may want to require that it be deducted from the
next paycheck.
• Purchases from employers. Many times employers permit employees to purchase
merchandise at a discount. If you permit the employee to do so on credit, consider including in
your policy a provision for deducting that purchase price from wages. Again, care must be taken
in designing such a procedure so as not to violate the minimum wage laws.
• Assignment of wages. Some states permit an employee to make an assignment of his or her
wages. Essentially, this assignment works just like a garnishment. But, instead of a court order
requiring the payment of money to a creditor, the employee simply makes a contractual
agreement with the creditor that the money is to be paid directly by the employer to the creditor.
Consider whether you will comply with such a request. Moreover, you will need to consult with
counsel concerning applicable state law that may require you to comply or to ignore such an
• Overpayment of wages. Occasionally, an employer will find that it overpaid an employee.
As an example, the employer requests a transfer from a second shift to a day shift. After the
transfer, the payroll department fails to eliminate the premium pay for working a second shift.
The employee continues to receive it for several weeks. Under those circumstances, state in your
policy the method by which you recover that overpayment. Obtain the employee’s written
authorization prior to making the deduction.
• Charitable contributions. Employers often permit employees to use payroll deductions to
donate a portion of their wages to charity. Cover this topic if you follow this practice. Please
keep in mind that such a practice can permit a labor organization to require that payroll
deductions be made for union dues.
• Written consent. Generally, your policy should provide for written consent for routine
deductions as part of the package of material completed upon hiring. Subsequently, for any
specific deduction you should again obtain written permission to deduct money from an
employee's paycheck. For example, if you make a specific loan to an employee, grant a particular
payroll advance or permit a particular purchase, each of these transactions should be documented
• Vacation or sick day advances. At times you may permit an employee to take vacation or a
sick day before it is earned. Care should be taken to document this transaction as a “payroll
advance” with written consent from the employee to deduct this advance from future
compensation. In this fashion you protect yourself if the employee quits the following week.

• Fair Labor Standards Act. This federal law general governs the payment of wages to most
employees. Exempt employees are to be paid a “salary.” An employee is not paid on a salary
basis if deductions from the salary are made for absences occasioned by the employer or by the
operating requirements of the businesses. If the employee is ready, willing, and able to work,
deductions may not be made for time when work in not available. Improper deductions can cause
exempt employees to be entitled to overtime.
• Payroll practice. The following payroll practices generally do not cause exempt employees to
be entitled to overtime under the FLSA:
   --Deductions from exempt employees accrued leave accounts
   --Requiring exempt employees to report their hours worked
   --Requiring exempt employees to work a specific schedule
   --Implementing bona fide, across-the-board schedule changes
   Note: Some government regulators and some courts may disagree about whether the
deduction is lost when deductions are made from accrued leave accounts.
• Improper deductions. Improper deductions that can cause an exempt employee to be entitled
to overtime under the FLSA include: deductions from pay for a partial-day absence to attend a
parent-teacher conference; deduction of a day of pay because the employer was closed due to
inclement weather or lack of work; deduction of three days of pay because the employee was
absent from work for jury duty, rather than merely offsetting any amount received as payment for
the jury duty; or deduction for a 2-day absence due to a minor illness when the employer does not
have a bona fide plan, policy, or practice of providing wage replacement benefits for these types
of absences.
• Proper deductions. Proper deductions from exempt employees under the FLSA include:
deductions for an absence from work for 1 or more full days for personal reasons, other than
sickness or disability; deductions for an absence from work for 1 or more full days due to sickness
or disability if the deductions are made under a bona fide plan, policy or practice of providing
wage replacement benefits for these types of absences; deductions to offset any amounts received
as payment for jury fees, witness fees, or military pay; deductions for penalties imposed in good
faith for violating safety rules of “major significance;” unpaid disciplinary suspension of one or
more full days imposed in good faith for violations of workplace conduct rules; proportionate
adjustments of part of an employee’s full salary time actually worked in the first and last weeks
of employment; and deductions for unpaid leave taken pursuant to the Family and Medical Leave
• Safe harbor. A “Safe Harbor” exists that will keep an exempt employee under the FLSA
from being classified as not exempt even when improper deductions are made. The exemption
will not be lost if the employer: has a “clearly communicated” policy prohibiting improper
deductions, which includes a complaint mechanism; reimburses employees for any improper
deductions; and, makes a good faith commitment to comply in the future. Evidence of a “clearly
communicated policy” is a written policy that is distributed to employees prior to the improper
pay deductions by providing a copy of the policy to employees at the time of hire; placing the
policy in an employee handbook; or placing the policy on the employer’s intranet.
• Court orders. Failure to make deductions in accordance with court orders, such as child
support or garnishments, may cause the employer to become liable for the amount not deducted.
• State laws. State laws may set a different standard for deductions, especially deductions from
employees exempt from overtime. BLR’s Quick Guide to Employment Law provides summaries
of federal employment law and state laws.
1. Administration of your deduction policy. Have one person or one department responsible
for administering this policy to ensure consistency in resolving problems. Moreover, that
unanticipated event can then be covered in the next revision of the policy.
2. Review of your policy. Review your deduction policy at least annually to ensure compliance
with applicable law.
3. Coordination with other policies. There are a variety of policies that must be coordinated
with your payroll deductions. These include benefits, payroll advances, purchases from the
company, check cashing, garnishment, wage assignments, and the like. Be certain that you have
considered all policies that may potentially interact with your deductions from employees’
     On the following pages are sample forms for:
    Consent to payroll deductions
    A relocation agreement
    A training expense agreement
                              Consent to Payroll Deductions

Note: Your execution of this form evidences your consent to deductions from your wages. Please
read it carefully.
ABC Company (Employer) is hereby authorized to deduct from any sums due Employee,
including Employee’s wages, the following deductions (to the extent allowed by applicable law):
1. All charges for items purchased by Employee from Employer
2. Supplementary uniforms purchased by Employee
3. Group insurance premiums/contributions
4. Payroll advances, including vacation or sick day advances, overpayment of wages or other
5. Returned checks signed by Employee
6. Market value of all items issued to Employee (e.g., training materials, aprons, uniforms, tools,
   etc.) damaged or not returned by Employee
7. Amounts paid by Employer on Employee’s behalf
No deduction from Employee’s wages for any period shall cause Employee’s wages for any such
period to be less than the wage required to be paid by the Employer pursuant to applicable law.
The deductions not taken for such period may be carried over to succeeding pay periods and
deducted from the wages due in succeeding pay periods to the extent allowed by law.

______________________               __________________________________
Date                                 Employee (signature)
______________________               __________________________________
Social Security #                    Employee (printed name)

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