Can We Make Deductions From Employees Final Paychecks?
When terminated employees
fail to return uniforms, equipment, etc., it may be
tempting to deduct the cost of such items from their
final paychecks. Be careful! The FLSA generally does
not allow employers to make deductions from
employees. Pay, whether upon termination or during the
regular course of employment, except in very limited
circumstances.
Under the FLSA, an
employer must pay exempt employees their full salaries
for any week in which they do any work, no matter how
many or few hours they worked. Deductions may be made
in 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 pay may not
reduce their wages below minimum wage, and 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, including:
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
may not have employees reimburse you in cash
for the cost of those items in lieu of
deducting the cost from employee’s wages.
Note:
State
laws may contain more severe restrictions on
deductions from employee’s wages. Refer to
the list of state Wage Deduction laws in
Appendix F.
Rather than making a pay
deduction, consider these other options.
-
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.
-
File a theft complaint with the police or go to small claims court.
Although both may be more trouble than they’re
worth, perhaps sending the employee a letter
threatening to do, one or the other might do the
trick.
AN EXCEPTION FOR EXEMPTS
FINAL PAYCHECKS
One exception to the
salary test for exempts applies when they work an
abbreviated final week of work. Then, an employer only
has to pay the departing employee a proportionate part
of his/her salary for the time actually worked.
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.
For the future, you may
want to consider requiring a deposit at the time the
equipment/uniforms are issued, which is 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.
BY WHEN MUST WE PROVIDE
THE FINAL PAYCHECK?
No federal law dictates
by when you must pay employees upon termination.
However, many states do. In some cases, there is a
difference in that timing when it involves an employee
who is fired versus an employee who quits.
If you
have any questions regarding Wage and Hour, or if you need guidance on
a specific event,
HR-OneSource can provide help. Please contact
David L.
Hansen, SPHR, CCP,
hansend@hr-onesource.com
or Jack Lipovac, SPHR,
lipovacj@hr-onesource.com at (515) 221-1718.
