31 Jul FLSA: Deductions from Pay
Deductions made from wages for items such as cash or merchandise shortages, required uniforms, and tools of the trade are illegal if they reduce the wages of employees below minimum wage or reduce the amount of due overtime pay.
Required Deductions
Employers are required to make deductions for contributions and applicable local, state, and federal income taxes, Social Security, and Medicare taxes. The employer must submit the amounts withheld to the appropriate governmental agency. Additionally, employers generally may make deductions to correct errors, such as overpayment.
Employers who make deductions from the wages of exempt-status employees, however, run the risk of losing the exempt status of those employees. Moreover, deductions for shortages, debts to the employers, uniforms, and uniform maintenance generally are found to destroy exempt status.
Savings Bonds and Charitable Donations
Employees may authorize deductions from their paychecks for various reasons, including purchasing savings bonds or making charitable donations. Employers should only make deductions after first having obtained the employee’s written authorization for such discretionary deductions.
Unions
Generally, employers are not required to deduct employees’ union dues. However, a negotiated collective bargaining agreement with a dues check off clause may require the employer to deduct dues.
Political Candidates
In accordance with state law, employees may voluntarily request a deduction from an employee’s wages for any of the following:
- Support of political candidates
- Political action committees
- Political parties
- Ballot issues
An employee must provide an employer with the written authorization of voluntarily designation of wages. The employer either may absorb the administrative costs of the deductions or may deduct the administrative costs from the amount deducted before transmitting the balance to the designated recipient.
Note: While not a federal wage/hour issue, employers should be careful to apply the same policy for all deductions, regardless of the candidate or the issue.
Wares, Tools, or Machinery
Subject to state law, an employee must provide an employer with written authorization for any deductions made from the employee’s wages for destroyed or damaged wares, tools, or machinery. However, such deductions may destroy an employee’s exempt status.
Wage Garnishments
Wage garnishment occurs when, as the result of a court order or other procedure, an employer withholds a specific percentage of an employee’s earnings for the payment of a debt. For example, if an employee’s creditor obtains a court judgment against the employee, the creditor may collect the judgment by garnishing the employee’s wages. Under this procedure, the creditor obtains a court order directing the employer (the garnishee) to withhold a certain amount from the employee’s wages and pay that amount directly to the court. However, garnishment proceedings may not be instituted until the creditor has first given the employee an opportunity to make voluntary payment and the employee has failed to do so.
Complying with a Garnishment Order
Under federal law, the amount of earnings garnished may not exceed the lesser of either of the following:
- Twenty-five percent of the employee’s disposable earnings for the week.
- The amount by which the employee’s disposable earnings for the week exceed 30 times the federal minimum wage.
Disposable earnings are those earnings that remain after the employer deducts amounts required by law, such as federal, state, and local taxes, Social Security, unemployment insurance, and state employee retirement systems. These restrictions do not apply to support orders, orders made by a bankruptcy court, or orders to collect unpaid state or federal taxes.
Example: An employee earns $500 per week after taxes. Twenty-five percent of the employee’s disposable earnings is $125. Thirty times the federal minimum wage is $217.50 ($7.25 x 30). The portion of the employee’s disposable earnings exceeding 30 times the federal minimum wage is $282.50 ($500 – $217.50). The employer should not withhold more than $125.
Notice
An employer first learns of a garnishment proceeding when it receives a court order with an Order and Notice of Garnishment and Answer of Employer, which sets forth an employer’s obligations. Along with the payment (via garnished wages), employers must review the form and submit a completed Interim Report and Answer of Garnishee. That is, unless the garnishment has been satisfied to the extent required by law, in which case the employer shall submit a completed Final Report and Answer of Garnishee to the court. State and federal law limit the amount of money subject to garnishment. A step-by-step procedure for calculating the amount that may be garnished is contained in the report.
If the employee is no longer employed at the time the employer receives the notice, the employer should so indicate on the report and simply return it.
A continuing garnishment order remains in effect unless one of the following occurs:
- The amount described in the garnishment order is paid in full.
- The judgment creditor files notice that the judgment is paid in full or otherwise satisfied.
- The court’s continuous order is stayed by a bankruptcy court or because a trustee has been appointed.
- A garnishment order of higher priority under state or federal law, for example a child support order or a tax levy, is issued to the garnishee from a different judgment creditor with respect to the same debtor.
Note: State or local laws may impose additional restrictions upon garnishments.
Employee Discharge Due to Excessive Garnishment
Employers may not discharge an employee whose earnings are subject to one creditor’s successful garnishment in a 12-month period. However, unless the employer is otherwise prohibited from discharging the employee, two or more successful garnishments by separate creditors within the same 12-month period are valid grounds for discharge. Employers adopting a policy of discharging employees for multiple garnishments should be careful that such a policy does not have a discriminatory impact on any protected group of employees and does not violate protective state laws.
Violations of the garnishment laws may result in reinstatement of the discharged employee, payment of back wages, and restoration of improperly garnished amounts. Employers who willfully violate the discharge provisions of the law may be prosecuted criminally and fined up to $1,000, imprisonment up to one year, or both.
Child Support Orders
As the result of divorce or support proceedings, courts may order employers to make regular payroll deductions for the collection of child support payments. Child support payments are given priority over other garnishment or wage-withholding orders and, depending on the employee’s circumstances, the garnishment law allows up to 60 percent of an employee’s disposable earnings to be garnished for child support. An additional 5 percent may be garnished for support payments more than 12 weeks in arrears. The amount to be deducted is fixed by court order and the employer should treat such a deduction as it would any payroll tax, paying the deducted payments regularly to the proper agency.
An employer may not discipline, discharge, or refuse to hire an individual because of a withholding order for child support. An employer violating these provisions may be liable both for statutory penalties and subject to a civil suit for wrongful discharge.
Original content by the HR Support Center. This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.