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It’s “What’s Up? Wednesday”. Time to talk about wage deductions . . .

By February 20, 2013July 23rd, 2018Human Resources

You asked:  “In the past, employees have quit without notice and have not returned their name badge or company property. In addition, they have owed the company for purchases, property damage or insurance premiums. Can we hold their final paycheck until company property has been returned? Can we deduct what is owed from their last paycheck?  What if their last paycheck isn’t enough to cover it?”

The answer:

Per federal law: you are allowed to deduct equipment damage and loss from the paycheck of NON-EXEMPT employees if two conditions are met:

1. These deductions cannot drop any paycheck below the federal minimum wage OR reduce the amount of any overtime compensation the employee has earned.

2. The employee must have already signed a written agreement (before the damage occurred) by which he agreed to such deductions.

If the employee is EXEMPT, his salary is “guaranteed” and cannot be reduced for poor work performance. (If you make such deductions from an exempt employee’s paycheck, they will be deemed “non-exempt” and entitled to overtime from then on.)

If you are going to deduct pay from an hourly employee, it is best to be absolutely certain that they are responsible for the loss or damage.  If you can’t prove that the loss or damage was due to negligence, carelessness, or an actual intentional act on their part, you could be out more than the cost of replacement if you seek reimbursement through wage deductions. Under Pennsylvania’s Wage Payment and Collection Law, serious liabilities may arise if an employer unlawfully withholds pay from an employee.  These include a 25% penalty, individual liability for any management personnel that participated in the wrongful decision to withhold wages due and a mandatory award of attorney fees and costs paid to any prevailing employee.

If you decide not to pursue the wage deductions, or if the amount exceeds what can legally be deducted from their last paycheck, you can consider a civil suit or make a claim in small claims court.

Encouraging the terminated employee to return or pay for company property by withholding the final paycheck is an option. But there are limits on how long you can hold it.  Ideally, the final paycheck should not be held later than the following pay day and definitely no longer than one month.

And don’t forget about that signed authorization from the employee, allowing you to deduct from final wages.  Pennsylvania law states that deductions for purchases or replacements by the employee from the employer are allowed “provided such deductions are authorized by the employee in writing or are authorized in a collective bargaining agreement.” Consider adding a Wage Deduction Authorization Agreement to your new hire paperwork.

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