Union Leader: KNOW THE LAW – Deduct Costs From Employees’ Paycheck? – 04/2010

April 30, 2010

This question was answered by Neil Nicholson of the McLane Law Firm

Q:  My employee lost his company cell phone the same day he backed over a customer’s mailbox while making a sales call with a company car.  It seems only fair that he should have to pay me back for the cell phone, pay for a new mailbox, and repair the scratches to the company car.  Can I deduct these costs from his paycheck? 

A:  The law on wage deductions starts with the basic rule that you cannot withhold or divert any portion of your employee’s wages.  Your authority to take earned wages from your employees’ paycheck and either keep it for yourself or send it somewhere else relies entirely on the exceptions to that basic rule.  If the reason for withholding is not on the list of exceptions, you cannot deduct from an employee’s wages.

The list of exceptions includes what you would expect – the ability to withhold as required or empowered by state or federal law (e.g., taxes, child support order) – but does not include what perhaps you might expect – authority to deduct wages if your employee loses his cell phone or takes out a mailbox with the company truck.

You would also expect that withholdings that accrue benefits for the employee would be allowed, and many are, but only if you have written authorization from the employee.  Common allowed deductions include union dues, voluntary contributions to charities, and group insurance benefits without financial advantage to the employer.

There are also special circumstances where you may withhold but must provide a written itemized accounting to the employee at least once per month.  A partial list of these special diversions include voluntary contributions into flexible benefit plans, voluntary payments by the employee for certain child care fees, installment payments on a legitimate loan, and parking fees.

 The law in this area is quite specific, and traps for the uninformed abound.  For example, even amounts accidentally overpaid to employees cannot be repaid through wage deduction unless the employee agrees to the deduction in writing, the agreement meets certain timing and quantity limitations, and it includes provisions regarding deductions for outstanding amounts upon termination of employment.
Before you start taking pay out of your employee’s paycheck you must first remember that the basic rule is that you cannot do it.  Then, look for exceptions and follow the precise instructions set forth in RSA 275:48 and the Department of Labor regulations.   

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