Deductions

 

What do uniforms, tools, and damages (a broken dish, computer, phone, etc.) have in common?

Under the Fair Labor Standards Act they are all items that are considered to be for the benefit of the employer, unlike meals and lodging which are considered to be for the benefit of the employee.

If a deduction is considered to be for the benefit of the employer it may not reduce an employee’s wage to below minimum wage on a weekly basis.  It does not matter whether the cost is paid by the employee out of pocket or taken directly out of the employee’s paycheck.

Let’s look at an example:

Employee Jim works as a security guard and is paid $11.00 per hour. In his first week of work he is required to purchase a uniform ($50) and a flashlight ($10) and put a deposit down on a walkie-talkie ($100) that he will recoup at the end of his employment if he returns the walkie-talkie in good condition. He worked a total of 35 hours in his first week.

Total pay pre-deductions = $11.00 per hour * 35 hours = $385.00

Total pay post-deductions = $385.00 – ($50 + $10 + $100) = $225

Actual hourly rate = $225/35 hours = $6.43 per hour ($0.82 less than federal minimum wage)

In this scenario Jim would be owed $0.82 * 35 hours = $28.70 in minimum wage back wages and $28.70 in liquidated damages. If he is employed in a state with a higher minimum wage with similar deduction laws it could be higher.

Don’t forget that employees who receive tips and are paid a cash wage which is less than minimum wage are considered to be paid a regular rate of minimum wage (even if they make $500 per week in tips) so deductions that are considered for the benefit of the employer may never be taken from their pay.

If Jim had worked 45 hours in that week the scenario would be slightly different because federal labor law has different rules for deductions depending on whether the employee works over 40 hours in the week when the deductions are made.

If an employer wishes to make deductions that are for the benefit of the employer in an overtime week he must first inform his employee (verbally or in writing) that deductions will be made for certain items and identify the cost for each item.  If that has been done then the employer may make deductions for those items as long as those deductions do not take the employee’s hourly rate below minimum wage for the first 40 hours. The employer is NOT allowed to deduct any money from the overtime hours.

If we return to our example with Jim the security guard….

Jim starts his first day of work and the employer gives him an employee handbook which contains a “Deduction Policy” page that explains to the employee that deductions will be made for the following items in the first paycheck:

Uniform: $50

Flashlight: $10

Walkie-Talkie deposit: $100

 Jim works 45 hours in the first week. He is paid $11.00 per hour and his overtime is paid correctly at an additional $5.50 per hour. How much can the employer legally deduct from his pay?

$11.00 – $7.25(federal minimum wage) = $3.75 per hour * 40 hours = $150 allowable deduction

(Remember, he can only deduct from the first 40 hours)

The employer can deduct for the uniform and the walkie-talkie deposit in the first week ($150) and wait until the second week to deduct for the flashlight ($10).

Keep in mind that this tip of the week only takes into consideration federal labor laws.  It’s possible that a state could have stricter labor laws that disallow any deductions that are considered for the benefit of the employer.  When state and federal laws differ the one that most protects the employee is the one that is enforced.

To view the actual guidelines regarding deductions in overtime weeks click here and scroll down to 32j08. 

We hope you found this week’s tip helpful and informative. Please pass it along to anyone you think might be at risk as a result of making illegal deductions from employees’ pay. Follow us on facebook to get the next Tip of the Week on your newsfeed!

Link: http://laborbrain.com/tip-of-the-week-deductions/

–    By Kalen Fraser

The Labor Brain Inc. is not a law firm and its employees do not practice law or provide legal services.  The information provided on our website,  in email correspondence with representatives of The Labor Brain, and at outreach events is for informational and educational purposes only.  The information provided is not a substitute for the advice of an attorney.