Sample Letter for Employer Allowing an Employee for Salary Advance - PDF by elr18761

VIEWS: 1,708 PAGES: 10

More Info
									                       Can I Deduct that from their Paycheck?
  (a discussion of North Carolina law on deducting/withholding amounts from employee
                                          pay)

                                 KENNETH R. KELLER

        North Carolina’s Wage and Hour Act, sections 95-25.1 et seq. of the North Carolina
General Statutes, limits an employer’s ability to withhold sums from employee wages. Section
95-25.8 of the North Carolina General Statutes sets forth the general rule that an employer may
withhold portions of employee wages in only two circumstances: 1) when required or empowered
to do so by State or federal law (such as withholding for federal and State tax, garnishment for
child support), and 2) when the employer has a written authorization from the employee. The
statute recognizes two types of authorizations, the specific authorization (where the amount or rate
of the proposed deduction is known and agreed to at the time the employee signs the authorization)
and the blanket authorization (where the amount of the proposed deduction is not known and
agreed upon in advance of signing). Both authorizations must be 1) in writing, 2) signed by the
employee 3) on or before the payday for the pay period from which the deduction is to be made,
4) show the date of signing by the employee, and 5) must indicate the reason for the deduction.
13 NCAC 12.0305(A)(2)(b). Even with an authorization, the amount which can deducted is
limited by statute. NCGS §95-25.10.

       1.      Specific Authorization.

        In addition to the foregoing five requirements, a specific authorization must specify the
dollar amount or percentage of wages which shall be deducted, and may be for one or more
paychecks. NCGS § 95-25.8(2)(b); 13 NCAC 12.0305(c). Where deductions are for the
convenience of the employee (such as deductions for insurance, savings plans, credit union
installments, savings bonds, union or club dues, uniform rental, uniform cleaning, parking and
charitable contributions), the regulations require that the employee must be given a reasonable
opportunity to withdraw a specific authorization. 13 NCAC 12.0305(c). Although the regulations
do not so state, the examples cited in the regulations are of ongoing expenses to benefit employees
and it appears the intent is to allow employees to change their mind and cancel authorizations for
such deductions prospectively. By implication, it can be argued that an employer does not have
to give an employee a reasonable opportunity to withdraw a specific authorization for a deduction
where the employee has received value, (such as deductions from an employee's pay for items
such as tools or purchases by an employee pursuant to an employee purchase plan - see discussion
of the treatment of loans/salary advances, infra section 4). When the employee has already
received value, it would be inequitable to allow the employee to withdraw such authorization prior
to reimbursing the employer.

       An employer may include in a specific authorization a provision allowing the employer to
deduct the unpaid balance from the employee’s paycheck in the event of the employee separates
from employment prior to the full amount being collected. If the employer obtains such an

                                                -1-
authorization, the employer may deduct the balance from the final paycheck without having to give
the employee notice of the amount then due or a reasonable opportunity to withdraw the
authorization. However, absent this provision, the employer will be limited to the authorized
amount. 13 NCAC 12.0305(j).

       See Appendix - Form 1 for a sample Specific Authorization.

       2.      Blanket Authorization.

        A blanket authorization is used when the amount of the proposed deduction is not known
and agreed to at the time of signing, and authorizes specific categories of deductions or
withholdings without specifying an actual dollar amount. NCGS §95-25.8(2)(b). When the
amount of any such deduction becomes known, the employer shall not make the deduction until
the employee has been given advance notice of the specific amount of the proposed deduction and
has been given a reasonable opportunity to withdraw the authorization before the deduction is
made. Id. The better practice is to provide this advance notice in writing. The statute provides
that, except when the employment is terminated, “advance notice” of the specific amount, for the
purposes of cash shortages, inventory shortages, or loss or damage to an employer’s property,
must be at least seven days prior to the payday on which the deduction is to be made. NCGS §95-
25.9. The regulations provide that a “reasonable opportunity to withdraw” a blanket authorization
is three calendar days from receipt by the employee of notice of the amount of the deduction. 13
NCAC 12.305(d)(2). The inclusion of a notice of right to withdraw in the authorization signed
by the employee should provide evidence that the employee had knowledge of that right.

       Where an employee has separated from employment, the seven day notice period is not
required (NCGS §95-25.9). The North Carolina Wage and Hour Division generally recognizes
24 hours as reasonable notice under termination circumstances.

       See Appendix - Form 2 for a sample Blanket Authorization.

       3.      Limitations on Amount of Deductions.

        As noted at the outset, even with a proper authorization and notice, an employer is limited
in the amount that can be deducted from a given employee paycheck. To complicate matters
further, the amounts which can be deducted vary, based on whether the employer is subject to the
Federal Fair Labor Standards Act (FLSA) or North Carolina's Wage and Hour Act. The United
States Department of Labor takes the position that deductions may not be made in a week in which
an employee subject to federal law works overtime and is due overtime pay. The reason given by
Federal Compliance Officers for this position is that federal law requires that employees receive
one and one-half time their regular rate for all hours worked in excess of 40 and that, if any non-
statutory deductions are made from an employee in an overtime week, the employee will not be
receiving overtime compensation. However, in weeks in which an employee does not work any
overtime, federal law only requires that the employee receive minimum wage $5,15/hour for all
hours worked) such that the employer can, under federal law, legally deduct all amounts otherwise

                                               -2-
due the employee over and above the amounts the employee would receive if paid the minimum
wage for all hours worked that week.

       By contrast, under NCGS §95-25.10, an employer subject only to the North Carolina Wage
and Hour Act may deduct for cash shortages, inventory shortages, loss or damages to an
employer's property, and deposits by an employee for the use of an employer's property only
those amounts in excess of 85% of the State minimum wage (same as the federal minimum wage)
and overtime wages owed to an employee.

       Deductions for illegal reasons cannot be made, even with authorization. By way of
example, an agreement by an employee to pay any portion of a premium paid by the employer to
a worker's compensation insurance carrier is illegal. Similarly, employers are required to
provide, at no cost to the employee, all personal protective equipment which the employee does
not wear off the jobsite for use off the job. Deductions for either of these purposes would be
improper, even if authorized. 13 NCAC 12.0305(i).

       4.     Exceptions to Requirement for Authorization.

              A.      Advances to Wages/Loans

        Advances to wages and the principal amount of loans are recognized as prepayment of
wages and are therefore exempt from the authorization requirements. The regulations recognize
that advance of wages to the employee at the employee’s request, as well as advances of wages
to a third party at the employee’s request, are prepayment of wages. A dated receipt, signed by
the employee, for the advanced wages is sufficient to show the advance was requested and made.
No authorization is required for the employer to deduct for these amounts, since the employee has
already received value. 13 NCAC 12.0305(f). That is, any form of wages advanced by an
employer to an employee which have not been repaid by the employee may be used by the
employer as a credit toward any other form of wages due the employee.

        Loans by the employer are recognized as an advancement of wages, as is credit advanced
by the employer to an employee at the employee’s request for the purchase from the employer of
items not primarily for the benefit of the employer. 13 NCAC 12.0305(g). However deduction
for interest or handling charges does require an authorization. Id. Obviously, to the extent that
an employer can, in good faith, structure a given transaction as an advancement of funds or loan,
the employer does not need to comply with the authorization requirements, is not subject to
revocation by an employee of any repayment agreement, and is not subject to limitation on the
amount of deductions from the employee's pay.

See Appendix - Form 3 for a sample Loan Agreement (No Interest) and Appendix Form 4 for a
sample Loan Agreement (With Interest).




                                              -3-
               B.     Cash Shortage, Inventory Shortage, or Damage to Employer’s Property

        The statutory requirements for an authorization, notice and an opportunity to withdraw,
and the minimum wage limitations do not apply if criminal process has been issued against the
employee, if the employee has been indicted, or if the employee has been arrested on criminal
charges incident to a cash shortage, inventory shortage, or damage to an employer’s property.
NCGS §95-25.11. However, North Carolina does recognize civil claims for abuse of process and
malicious prosecution, so that criminal process should never be invoked in any but the clearest
situations.

       5.      Special Situations.

               A.     Deduction for Time Missed from Work by Salaried Employee

        Deductions from pay otherwise due a salaried employee for time missed from work during
a given week can jeopardize the exemption from the overtime requirements of the Fair Labor
Standards Act (FLSA) and expose an employer to overtime liability. In order to meet the “salary
basis” requirement necessary for an executive, administrative, or professional exemption from the
overtime requirements of the FLSA, an employee must regularly receive each pay period on a
weekly or less frequent basis a predetermined amount constituting all or part of the employee's
compensation for each week worked. That is, “salaried” employees must receive a fixed amount
as salary for each week.

        With three exceptions, this salary must not be subject to reduction because of variations
in the quality or quantity of the work performed. An employer can make deductions for 1)
absences of a day or more for personal reasons; 2) deductions in accordance with a bona fide plan
when the employee is absent for a day or more for sickness or disability; or 3)deductions as
penalties for violations of safety rules of major significance. An employer cannot reduce the
salary of or "dock" a salaried employee for matters such as poor performance, failure to meet
production goals, arriving late, leaving early, or failing to meet requirements as to the number of
hours worked. Usually, the employer cannot suspend a salaried employee without pay during a
week in which the employee has performed any work. Subject to these specific exceptions, the
salaried employee must receive his or her full salary for any week in which the employee performs
any work, without regard to the number of days or hours worked. (However, the salaried
employee need not be paid for any work week in which he or she performs no work). 29 CRF
§541.118(a).

        An employee will not be considered to be “on a salary basis” if the employer makes
deductions from the employee’s predetermined compensation for absences caused by the employer
or by the operating requirements of the business. That is, if an employer closes the business at
a given point in time for the employer's own convenience (such as over Christmas holidays),
salaried employees must nevertheless receive their regular salary. 29 CFR §541.118(a)(1).



                                               -4-
        Deductions may not be made for disciplinary reasons, except infractions of safety rules of
major significance (such as those relating to prevention of serious danger to other employees).
29 CFR §541.118(a)(5). Either having a disciplinary policy or disciplining a salaried employee
by deducting pay or sending the employee home during a week without pay would violate the
"salary" basis requirements and could cause the loss of the exemption as to all employees subject
to the policy.

        Generally, employers cannot make deductions from salary for absences of less than a whole
day occasioned by sickness or disability (including work related accidents). However, if an
employer has a previously established plan, policy or practice providing compensation for loss of
salary caused by sickness and disability (such as a leave policy specifying a certain number of days
of paid leave), the employer may make deductions for absences of a day or longer due to sickness
or disability before the employee qualifies under such plan or after the employee has exhausted
the allotted leave allowed under the plan. 29 CFR §541.118(a)(3). In the case of a work related
accident, the "salary basis" requirement will be met if the employee is compensated for loss of
salary in accordance with the applicable compensation law or the plan provided by the employer,
provided that the employer also has some plan providing compensation for sickness and disability
other than that relating to work related accidents. 29 CFR §541.118(a)(3).

       Deductions may be made when the employee is absent from work for a day or more for
personal reasons, other than sickness or accident. Partial days may not be deducted. Deductions
may not be made for absences of an employee caused by jury duty, attendance in court
proceedings as a witness, or temporary military leave. 29 CFR §541.118(a)(2),(4).

               B.      Vacation.

       Occasionally, an issue arises with respect to deduction for amounts advanced as vacation
in excess of amounts earned. Where the employer has a clear policy as to when and in what
amounts vacation is earned, an advance of vacation should be treated as a loan or salary advance
and documented as discussed above in section 4.

       Another issue which arises concerning vacation is whether an employer is obligated to pay
vacation to separating employees. Under the North Carolina Wage and Hour Act, employers are
not required to provide vacation for employees. However, if an employer provides vacation for
employees, the employer is required to give all vacation time off or payment in lieu of time off
in accordance with the company policy or practice.

       Employees shall be notified of the employer's policies and practices concerning vacation
pay both at the time of initial employment, orally or in writing, and also thereafter by making a
copy of the policies and practices available to the employees in writing (such as through an
employee handbook) or through a posted notice maintained in a place accessible to the employees.

       Existing administrative code requires that all vacation policies and practices communicated
to employees address the method of vacation calculation so that the employees know the number

                                                -5-
of days of vacation to which they are entitled, whether or not vacation days may be carried
forward from one year to another, when vacation days must be taken, when and if vacation pay
may be paid in lieu of time off, and under what conditions and in what amount vacation pay will
be paid upon termination. 13 NCAC 12.0300.

        Section 95-25.12 of the North Carolina General Statutes provides that vacation time or pay
may be forfeited. However, such forfeitures can occur only if 1) the employer has established a
policy or practice which results in such forfeiture and 2) employees are notified of such policy or
practice in accordance with the requirements of NCGS §95-25.13.

       Section 95-25.13 requires that employers:

       (1)     notify employees, orally or in writing at the time of hiring, of the promised wages
               and the day and place for payment;

       (2)     make available to employees, in writing or through a posted notice maintained in
               a place accessible to its employees, employment practices and policies with regard
               to promised wages;

       (3)     notify employees, in writing or through a posted notice maintained in a place
               accessible to employees, of any changes in promised wages prior to the time of
               such changes; and

       (4)     furnish each employee with an itemized statement of deductions from that
               employee's wages for each pay period such deductions are made.

        North Carolina case law holds that policies resulting in forfeitures may only be applied
prospectively and can not result in forfeiture of benefits earned prior to adoption of (and proper
notification to the employee of) the policy in question. Narron v. Hardee's Food Systems, Inc.,
331 S.E.2d 205 (N.C. App. 1985)(Restaurant manager's vacation not subject to forfeiture if
vacation was earned prior to company's adoption of a policy which resulted in forfeiture of unused
vacation pay even though the policy resulting in forfeiture was adopted prior to termination);
Hamilton v. Memorex Telex Corp., 454 S.E.2d 278, (N.C. App. 1995).

                                        CONCLUSION

       Under North Carolina Law, no prior authorization is required for employers to deduct
loans or advancement of wages from compensation otherwise due to an employee. However, any
other non-statutory deductions can only be made with an appropriate written authorization. As
with other personnel matters, prior planning will prevent problems.




                                               -6-
                                   APPENDIX - FORM 1

                              (SPECIFIC AUTH0RIZATION)


       I hereby specifically authorize the Company to deduct and withhold

              the sum of $           from my pay each period to pay the cost of uniform rental
              and cleaning;

              the sum of $        from my pay each period for payment of my portion of the
              premium for group health care coverage for me and my family pursuant to the
              Company’s group health care plan.

I understand that I have the right to withdraw this authorization as to any period in which the
Company has not made a deduction, but that my withdrawal of this authorization does not relieve
me of liability for payment of any amounts owed by me.

       This the   day of          , 200 .



                                            Employee



Witness




                                             -7-
                                    APPENDIX - FORM 2


                               BLANKET AUTHORIZATION


        I acknowledge and understand the Company policy which requires that employees who are
entrusted with Company vehicles are financially liable to the Company for any repair costs to the
Company vehicle not covered by insurance in the event of a collision while the vehicle is in the
possession or control of the employee. In consideration of being entrusted with a Company
vehicle, I agree to reimburse the Company for any repair costs to the vehicle not covered by
insurance while the vehicle is in my possession or control.

         I hereby authorize the Company to deduct from wages and amounts which would otherwise
be due to me the full amount of any repair costs not covered by insurance in the event of a
collision to my Company vehicle while this vehicle is in my possession or control. I understand
that, so long as I am employed with the Company, I will receive at least seven days advance notice
of the amount of any such deduction and that I will have at least three calendar days from the date
of notice to me of the specific amount of this deduction within which to withdraw this
authorization. In the event of my termination from employment with the Company, I will receive
at least 24 hours notice of the amount of any deduction and may withdraw my authorization prior
to the time the deduction is made. However, even if I withdraw my authorization, I recognize and
agree that I will remain liable to pay the Company the repair costs not covered by insurance.

       This the    day of          , 200 .



                                             Employee



Witness




                                               -8-
                                    APPENDIX - FORM 3


                            LOAN AGREEMENT (No Interest)


       I acknowledge that, at my specific request, the Company has:

              prepaid wages to me in the gross amount of
              $         .

              prepaid my wages to             in the gross amount of $         .

              loaned to me the sum of $            .

              advanced credit to me in the amount of $          for purchase of items from the
              Company.

        In consideration of the foregoing, I hereby agree to repay the Company the amount set
forth above. I understand that the Company will deduct $          from my pay each pay period
until this sum is paid in full. I also understand that, in the event my employment with the
Company is terminated for any reason, the entire unpaid amount will be immediately due and
payable and that the Company may, without any other notice, apply any amounts owed to me by
the Company toward satisfaction of my debt.

        Upon termination of my employment with the Company, in the event any portion of my
debt to the Company remains unpaid after applying amounts owed by me to the Company, I agree
to repay this remaining sum, plus interest on this remaining sum at 8% per annum, from the date
of my termination, and reasonable attorney’s fees incurred by the Company in the event this
remaining sum is collected through counsel.

       This the   day of          , 200 .



                                            Employee



Witness




                                             -9-
                                     APPENDIX - FORM 4

                            LOAN AGREEMENT (With Interest)

       I acknowledge that, at my specific request, the Company has:

               prepaid wages to me in the gross amount of
               $         .

               prepaid my wages to              in the gross amount of $           .

               loaned to me the sum of $              .

               advanced credit to me in the amount of $             for purchase of items from the
               Company.

I agree to repay the foregoing amount, together with interest at the rate of per annum from the
date I sign this agreement until paid in full. I understand and agree that, so long as I am employed
by the Company, the Company will deduct $                from my pay each pay period in accordance
with the attached amortization schedule until this sum is paid in full. I also understand and agree
that, in the event my employment with the Company is terminated for any reason, the entire
unpaid amount will be immediately due and payable and that the Company may, without any other
notice, apply any amounts owed to me by the Company toward satisfaction of my debt.

       I specifically authorize the Company to deduct and withhold from my pay each period the
accrued interest set forth in the attached amortization schedule for the pay period to which my
paycheck applies. I understand that I have the right to withdraw this authorization for the
deduction of interest as to any period in which the Company has not made a deduction, but that
my withdrawal of this authorization does not relieve me of liability for payment of any amounts
owed by me.

        Upon termination of my employment with the Company, in the event any portion of my
debt to the Company remains unpaid after applying amounts owed by me to the Company, I agree
to repay this remaining sum, plus interest on this remaining sum at 8% per annum, and reasonable
attorney’s fees incurred by the Company in the event this remaining sum is collected through
counsel.

       This the    day of           , 200 .



                                              Employee


Witness




                                               -10-

								
To top