Can My Employer Dock My Paycheck as a Penalty?

Employee compensation includes cash payments and benefits which an employee receives in exchanges for the services which they provide to their employer. Most employees receive salaries or wage payments as the employee’s main form of compensation.

Employers may discipline employees by docking their pay or by putting them on unpaid suspension for violating a workplace rule. Such policies, however, may cause problems if that employee is exempt from overtime, or not entitled to overtime pay because they are paid on a salary basis.

In order to qualify as exempt, an employee must be paid a set amount each pay period without reductions based upon the quality or quantity of work they complete. If an employer makes deductions from this employee’s pay, they are treating them as a nonexempt employee, which means they would be entitled to overtime. The money the employer may save by docking their salary may be much less than that employee would make in overtime.

An employee, however, may also receive compensation in other forms, including:

• Health insurance;
• Life insurance;
• Disability insurance;
• Pensions;
• Vacation benefits; and
• Stock options.

Employee compensation can be divided into two main types, fixed and variable. Fixed compensation is typically subject to a set rate and includes:

• Wages;
• Salaries; and
• Benefits.

Variable compensation is dependent upon the performance of the employee and may include:

• Sales commissions;
• Pay bonuses;
• Case incentives; and
• Other similar types of compensation.

Typically, the expected form and amount of employee compensation is stated in the employment contract between the employer and the employee. However, there is an increase in cases of an employer using a paycheck deduction as a way to penalize an employee for subpar performance or workplace infractions.

An employer’s ability to legally use a paycheck deduction depends in large part on whether the employee is an hourly employee or a salaried employee. If an employee is paid hourly, it may be easy for their employer to dock their paycheck.

It is important to note, however, that some states require the employee to provide written consent to the deduction first. The main limitation for employers on paycheck deductions is that the deduction cannot drop the employee’s pay below the federal minimum wage amount.

If an individual is a salaried employee, a paycheck deduction may, ironically, end up having a positive effect for them. The federal wage guidelines provide that an individual’s salary cannot be reduced based upon the quality or quantity of that employee’s work.

Therefore, if an employee’s paycheck is docked for subpar performance, they would no longer be considered a salaried employee and they would then be eligible to collect overtime. This, however, does not apply to paycheck deductions which are a result of violating an important company safety rule.

Is it Legal to Dock Pay for Poor Performance or for Mistakes?

Generally, no an employer cannot engage in docking pay or fining employees for poor performance or mistakes, shortages, or damages. However, if the employee agreed in writing that a deduction could be made, the employer may be able to do so.

Only when an employer has reason to believe that the employee was responsible for the mistake and the employee agrees in writing that they will pay for the mistake can it be deducted from their pay.

What Remedies Do I Have?

The United States Department of Labor is the agency that is responsible for enforcing federal employment and labor laws. An individual who has been subjected to a deduction which is illegal under federal law may file a complaint with the Wage and Hour Division of the United States Department of Labor. If the employee’s complaint is resolved in their favor, they may recover the amount of money that was illegally deducted.

In addition, an employee who has been subjected to a deduction under state law may contact the Department of Labor in their state. Typically, state Departments of Labor have several local offices.

For example, counties may have their own office as well as major metropolitan areas. In a case where an illegal deduction was made under both federal and state law, both the United States Department of Labor and the state Department of Labor should be notified.

It is also important to be aware that both state and federal laws prohibit employers from retaliating against employees who file illegal wage deduction complaints. Employer retaliation may include:

• Terminating the employee;
• Demoting the employee; or
• Suspending the employee.

The employee may be able to file a second complaint for retaliation if they believe their employer retaliated against them for their claim of an illegal wage deduction. In other words, employees should be able to file reports for illegal wage deductions without fearing they will lose their jobs, miss promotions, or be subjected to other consequences for filing the report.

This also applies to reports which are filed internally, including through human resources departments, or externally, including with government agencies.

Does the Employer Have Any Defenses?

There are some defenses which an employer may attempt to raise in response to a report of an illegal paycheck deduction. These defenses may include that the employee consented to or authorized the deduction or that the deduction is permitted in their state.

There are some deductions which are voluntary, meaning that the employee can choose to authorize them. An employee may choose to authorize deductions such as:

• Health insurance premiums;
• 401(k) contributions;
• Union dues; and
• Charitable contributions.

Additionally, some employers may allow advances or loans to their employees. The employee may authorize deductions to repay those advances or loans.

An employee who authorizes a voluntary deduction must usually consent to a deduction in a written document which outlines the amount to be deducted per pay period. In general, an employer is not permitted to make a deduction without the written consent of the employee.

It is also important to note that some states permit certain deductions while others prohibit the same deductions. Examples of deductions which may be permitted in some states and not others include:

• A deduction for the cost of the uniform the employee is required to wear;
• A deduction for a cash register shortage which is attributable to the employee;
  • The State of California does not permit this type of deduction unless the employee was grossly negligent;
  • The State of New York does not permit deductions for cash register shortages, even if it can be shown that the employee was the only one who could access the cash drawer; and
• Deductions for employer-mandated training and seminars. The cost for these requirements cannot be deducted from the employee’s salary or wages.

An employer may not be subject to penalties for improper deductions if those deductions were isolated or inadvertent and the employer reimburses the employee for the amount that was improperly withheld. In addition, an employer may also avoid penalties if they:

• Have a clearly communicated policy which prohibits improper deductions as well as a complaint procedure;
• Reimburse the employee for any amount which was improperly withheld; and
• Make a good faith effort to comply with the laws in the future.

Should I Contact an Attorney?

It is essential to have the assistance of an employment law attorney for any paycheck deduction issues you may have. If your employer has made a deduction from your paycheck, you may want to file a complaint for an illegal labor deduction.

Before you do so, however, it is important to consult with an attorney who can assist you throughout the process. Your attorney will also represent you any time you are required to appear in court.