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14 Jun 2021 | by devteam

Deducting from Employee Pay

Employers, particularly small businesses, seek to deduct from employees’ pay for items such as uniforms, cash register shortages, and lost or broken equipment. While it may, or may not, be fair to have such a “you break, you buy” policy, one thing is certain: These practices aren’t always legal, and an employer may be exposing themselves to liability in the form of wages owed, liquidated damages, and attorneys’ fees.

The basics. In order to make a deduction from an employee’s pay, Texas law requires that the deduction be: (1) legal and (2) authorized in writing by the employee. Additionally, a deduction may generally not take an employee’s regular hourly pay rate below the minimum wage ($7.25 per hour), and deductions can never be taken from an employee’s overtime wages. The aforementioned criterion for making a deduction posits the following two questions: (1) What is legal? (2) What is required to be in a written authorization?

Legal deductions. Examples of permissible deductions include: tip credits, meals, lodging, uniforms (if the uniform is truly a uniform, street clothes do not count), and ordinary cash register shortages. Employers are also required to maintain records of any deduction made. Also, if the employer is providing meals, lodging and other facilities, and making deductions for those items, the cost to the employer of those items must be maintained. Routinely, I am asked whether an employer may deduct the cost of providing safety equipment, tools, and other equipment the employee needs to do the job for the employer. Generally, the answer is no because those items benefit the employer. An employer who provides safety equipment and tools for their employees should factor those costs into the cost of doing business.

Written Authorization. In Texas, deductions are generally only permissible when an employee signs an authorization for deductions to be made from their wages. A written authorization for permissible deductions should generally be obtained from all employees. The authorization should include all foreseeable reasons as to why a deduction may need to be made, such as for ordinary cash register shortages. The best practice is to include an authorization as a separate form in a new hire packet. While you may include the deduction policy in your handbook, you should have a separate written and signed authorization from every employee. An acknowledgement relating to the handbook is not sufficient.

Notice this posting uses “generally” and many illustrative examples. This is because wage and hour law, and the law relating to deduction, is quite complex and particular to each employer. If you are making deductions from your employees’ pay, the best thing to do is to consult with an attorney so that the particulars of your business can be evaluated.
Stephen J. Quezada



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