When a terminated employee fails to return company property such as uniforms, equipment, etc., the employer may be tempted to deduct these costs from their final paychecks.  Be careful!  The FLSA generally limits the deductions an employer can make from employees pay, whether a termination or during the regular course of employment, except in very limited circumstances.

The FLSA states that the employer must pay exempt employees their full salaries for any week they have worked, no matter how many hours.  Deductions may be made in very limited circumstances, but failure to return company property is not one of them.  Salary deductions made to reimburse the employer in this situation, would likely violate the salary-basis rule of the FLSA.

As for non-exempt employees, they must be paid for all hours worked, including overtime.  Any deductions from their pay may not reduce their wages below the minimum wage.  Deductions may not be made from overtime premiums.  This rule applies to the cost of items considered primarily for the benefit or convenience of the employer.  These items may include: uniforms and tools used in the employee’s work; damages to the employer’s property by the employee; theft of the employer’s property by employees; and financial losses due to clients/customers not paying bills.

Warning: You cannot require an employee to reimburse you in cash for the cost of the items, in lieu of deducting the cost from the employee’s wages.  State laws may contain more severe restrictions on deductions from the employee’s wages.  Rather than making a pay deduction, consider the following options.

1. Count the full cost of the unreturned equipment as compensation to the terminated employee, so the taxes for it would be deducted from his/her final pay.

2. File a theft complaint with the police or go to small claims court.

Although sometimes both may be more trouble than they’re worth. 

An Exception for Exempt Employee’s Final Paychecks

One exception to the salary test for exempt employees is when they work an abbreviated final week of work.  Then, an employer only has to pay the departing employee a reduced portion of his/her salary for the time actually worked.

Another option, is to let employees know that failure to return company property will cause them to be considered ineligible for rehire and references to prospective employers will reflect this fact.

In the future, you may want to consider requiring a deposit at the time the equipment/uniforms are issued, which will be returned when the items are returned in good condition.

Note: Check your state’s wage and hour laws again.  You may be prevented from collecting a deposit if it drops a non-exempt employee below minimum wage.