Can an employer make deductions from employee wages?
On the face it, the answer seems obvious: Of course! Employers make deductions from employee wages on a routine basis. Common examples that come to mind are for federal and state tax withholdings, or for court-ordered garnishments. Sometimes, employees authorize other deductions, such as for insurance or union dues. All of these examples share a common trait: They exist for the benefit of the employee or a third party.
But what about when an employer unilaterally docks an employee’s wages for items that benefit the employer, such as for a uniform, a background check, or for damage to employer property caused by an employee?
Generally, the Fair Labor Standards Act, the law governing wages on a federal level, permits unilateral deductions that benefit the employer provided that those deductions do not reduce the employee’s wages below the minimum wage. This rule applies to both overtime non-exempt and exempt salaried employees, and employers who routinely reduce the wages of salary exempt employees below the federal requirement of $455 per week run the risk of losing the exemption.
While federal law may permit deductions from employee wages, applicable state laws can and often do restrict the ability of employers to make deductions that benefit the employer. Ohio law prohibits employers from reducing the wages of employees for tools, damaged machinery, and uniforms absent written agreement with the employee. Going further than Ohio, Kentucky prohibits employers from deducting wages for things like breakage or property damage even when the employee authorizes the deduction. And of course, in both Ohio and Kentucky, employers should be wary of making deductions that reduce an employee’s wage to below the minimum wage.
The legality of deductions from employee wages is fact specific. Both employers and employees should be wary of wage deductions, as overzealous deductions could prove costly for pocketbooks and bottom lines.