Probably the most-commented-on article I've ever written is the one about cutting employees pay. Recently a reader wrote to ask if an employer can cut employee wages for a theft, to make the employees pay for the amount the owner lost. The answer is "NO." Employers who want to discipline employees must find a different way to do it besides withholding paychecks.
When Can Employers Cut Employee Pay?
The only way an employer can take money from employee pay is:
1. If the employee has specifically authorized the pay deduction. For example, contributions to a "flower fund" to pay for flowers for funerals, or for United Way or other charities must be approved in writing by the employee. Employees must also agree to pay deductions for benefit contributions.
The exception to this, according to the Wage and Hours Law, is that an employer can make deductions from an employee's pay without consent for items that are "primarily for the benefit or convenience of the employer" (uniforms, for example). But these deductions cannot take the employee below minimum wage. So, for example, if an employee is making minimum wage, no deductions for uniforms could be made.
2. For income tax withholding. Every employee must complete Form W-4 at hire specifying the amount of withholding for federal taxes. For all states where the employee works which have income tax, the employee must also complete a withholding form.
3. By contract. In a union contract, for example, employee pay may be deducted for union dues, depending on the contract and state laws. The employee may have an individual contract which authorizes certain specific deductions.
4, By a court. A court may require you to garnish employee wages for child support, non-payment of debts, or other purposes. The employee does not have to consent to this deduction.
In every case, there must be a written record in the employee's payroll file that the employee agreed to the deduction.
What about Payroll Taxes?
The only exception to the requirement for specific employee authorization is FICA taxes - Social Security and Medicare taxes. The employee portion can be deducted from employee pay without specific consent, since these deductions are required by federal law.
What If an Employer Wants to Cut Employee Pay?
Employers need to know that employees have the right to contact the state employment department or state labor board if their pay is cut without consent (except as I stated above). As an employer, you don't want the state labor people coming into your business in response to employee complaints. They will do a complete audit and may find other employment law violations. They may decide to contact federal agencies if they find federal violations. Not a pleasant picture for your business.
What about Retaliation?
And don't think about firing employees because they filed a complaint. Federal and state laws protect employees against wrongful termination.
More about keeping good payroll records on employees