What Can Employers Deduct From Employee Wages?

Businesses are required to keep records regarding all wage deductions, but what exactly can employers deduct from employee wages, and what is off limits?

The federal Fair Labor Standards Act (FLSA) prohibits employers from deducting the cost of any items which are considered primarily for the benefit or convenience of the employer from a non-exempt employee’s wages, if the deduction would reduce the employee’s earnings below the required minimum wage or overtime pay.

Some examples of items which would be considered to be for the benefit or convenience of the employer are:

• tools used in the employee’s work
• damages to the employer’s property by the employee or any other individuals
• financial losses due to clients/customers not paying bills
• theft of the employer’s property by the employee or other individuals.

Deductions from the pay of exempt employees are more complicated due to the fact that there are very specific terms and conditions that must be met in order to claim a particular exemption. For example, in order to qualify for exemption from the FLSA minimum wage and overtime pay protections as a bona fide executive, administrative, or professional employee, an employee generally must meet certain tests regarding his or her job duties and be paid on a salary basis at not less than $455 per week.

Permissible Deductions

In New York, employers are generally prohibited from deducting employees’ wages, except deductions which:

• Are related to the recovery of an overpayment of wages where such overpayment is due to an error by the employer, or for repayment of advances of salary or wages made by the employer to the employee; or
• Are expressly authorized in writing by the employee and are for the benefit of the employee, provided that such authorization is voluntary and only given following receipt by the employee of written notice of all terms and conditions of the payment and/or its benefits and the details of the manner in which deductions will be made. Such authorized deductions are limited to payments for (among other things):
  • Insurance premiums;
  • Pension or health and welfare benefits;
  • Payments for or dues or assessments to a labor organization; or
  • Discounted parking or discounted passes that entitle the employee to use mass transit.

Prohibited Deductions

Employers may not make deductions for the following (among other things):

• Employee purchases of tools, equipment, and attire required for work;
• Recoupment of unauthorized expenses;
• Repayment of employer losses, including for spoilage and breakage, cash shortages, and fines or penalties incurred by the employer through the conduct of the employee; or
• Fines or penalties for tardiness, excessive leave, misconduct, or quitting without notice.

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Source: “New York Deductions from Wages” by Zywave