Allowable Wage Deductions Law Expanded

Photo of Linda Johnson
Linda S. Johnson
Director, Litigation Department and Vice Chair of Education Law Group
Published: Portsmouth Herald
July 1, 2011

Effective Aug. 6, an employer’s ability to make deductions from an employee’s paycheck has been expanded under a new law signed by Gov. John Lynch on June 7. Before this change, many employers found out the hard way that an employer can withhold from an employee’s wages only for reasons specifically listed under New Hampshire wage law. If it wasn’t listed, it wasn’t legally allowed.

Among the allowable reasons were the following: voluntary contributions into a cafeteria or flexible benefit plan, voluntary contributions to charities, union dues, voluntary cleaning of uniforms and a host of other listed reasons that are for the benefit of the employee.

In all instances of wage deductions, except for state and federal payroll withholdings, an employer must also obtain an employee’s written authorization for the deduction. Some employers were under the false understanding that, if they got an employee’s written authorization for a deduction, that alone was sufficient to make a deduction lawful — not so. In order to be legally allowed, the deduction must be both authorized in writing by the employee and be one of the specifically stated reasons listed in state law.

Thus, when an employer deducted from an employee’s wages without his written authorization for an accidental overpayment, the employer was found to be in violation of law for failing to have the employee’s written authorization. Each year, the N.H. Department of Labor publishes a Top 10 Labor Law Violations listing, which has included “taking illegal deductions from wages.”

Bottom line: Unless the deduction is agreed to in writing by the employee and for one of the reasons set forth under the law, it is not allowed, no matter how much business sense the deduction might seem to make.

The recently passed House Bill 647 provides a bit of a catch-all that will make it easier for employers and employees to agree to valid deductions. The law now provides that an employer may withhold from wages for any purpose about which the employer and employee mutually agree that does not grant financial advantage to the employer. The employee must give his or her written authorization and the deduction must be duly recorded.

The new law carves out an exception that the withholding shall not be used to offset payments intended for purchasing items required in the performance of the employee’s job in the ordinary course of the operation of the business.

Once the N.H. Department of Labor begins to address claims made under the law, we will have greater insight about how this new law will be applied. In the meantime, care should be taken by all employers when making deductions from an employee’s paycheck.

Except for state and federal payroll withholdings, all deductions must be authorized in writing by the employee, even for things like medical insurance premiums or 401(k) contributions. In addition, the deduction must be covered by one of the stated reasons under N.H. RSA 275:48.

Despite the new catch-all provision, questions may still arise about whether a particular deduction agreed to by the employer and the employee is legal. Employers would be wise to consult with legal counsel or call the N.H. Department of Labor wage and hour division to seek input about whether they are applying the law correctly.