What Can You Deduct From an Employee's Paycheck?

Learn the rules on deducting for uniforms, advances, breakage, and more.

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Can your company deduct the cost of uniforms or tools from an employee’s paycheck? What about deducting cash register shortages? Surely, it’s acceptable to deduct any amount the employee owes the company, right?

Not necessarily. Under the federal law, the general rule is that employers may deduct certain expenses from their employees’ paychecks, as long as the deductions don’t bring amount the employee receives below the minimum wage. (There’s an exception for employers that provide meals and lodging, as explained below.) However, some states are more protective. Not all states allow employers to pass certain costs on to employees. Even in states that allow these types of deductions, employers have to follow certain rules.

This article explains the basic paycheck deduction rules employers must follow. To find out what your state allows and prohibits, contact your state department of labor.

Deductions to Pay Back a Debt

If an employee owes your company money – for a salary advance, for example – the company is entitled (under federal law) to withhold money form the employee’s paycheck to pay itself back. However, you cannot deduct so much that the employee’s earnings for that pay period drop below the minimum wage. (The current federal minimum wage is $7.25 an hour.) If an employee owes your company a substantial debt, you can avoid running afoul of this rule by deducting money in installments.

Some states prohibit employers from deducting money from employee paychecks at all, or limit the circumstances under which they may do so. For example, state law may require employers to secure the employee’s agreement, on a signed consent form, to withhold this money.

Deductions for Uniforms

Under federal law, employers may deduct the cost of a uniform (including the cost of having it cleaned and pressed) from an employee's paycheck, as long as the employee's wages after the deduction don't fall below the minimum wage. If an employee earns the minimum wage, the employer may not require the employee to pay for a uniform, through payroll deductions or otherwise.

Some states have stricter rules. In New Jersey, for example, employers may not charge employees or require employees to buy a uniform that has a company logo or is unsuitable for street wear. And, a number of states don't allow employers to charge employees for uniforms under any circumstances. In these states, the cost of uniforms is considered a business expense, which must be borne by the employer.

Deductions for Tools and Equipment

The same federal law that applies to uniforms applies to work tools: Employers may require employees to purchase them, whether through payroll deductions or otherwise, only if the employee's pay after deductions is at least equal to the minimum wage.

State laws differ here as well. Oregon employers may require employees to pay for their work tools if the employee earns more than the minimum wage. However, Oregon employers may not withhold from an employee’s paycheck to pay for tools. In California, employers must provide all tools and equipment necessary to perform the job; employees can't be required to pay at all.

Deductions for Cash Register Shortages and Breakage

Some employers charge employees for items they break or shortages in their cash register drawers. Under federal law, the general rule applies: Employers can charge losses and damage to the employee, as long as the employee is still earning at least the minimum wage.

A number of states are more protective. Some states require employers to get the employee's consent, in writing, before they can deduct the cost of broken goods or shortages from the employee's paycheck. Some allow these deductions only from an employee who admits being responsible for the loss or shortage.

California doesn't allow these deductions at all. Unless the employer can show that the employee acted dishonestly, willfully, or in a grossly negligent manner, these costs may not be passed along to employees. 

Deductions for Lodging and Meals

Under federal law, there’s an exception to the general rule that no deduction can bring an employee’s pay below the minimum wage. Employers may deduct the cost of providing lodging and meals provided to employees, even if that causes the employee to take home less than the minimum wage. In fast food restaurants, for example, many employees work minimum wage jobs – and employers often charge employees the cost of one meal per shift.

Employers may deduct meals and lodging only if it is customary in the industry to provide those items to employees. And, the employer may deduct only the reasonable cost of providing the items, not what it would charge the public.

Most states follow the same rule, but some are more protective. In California, for example, employers may take deductions for meals and lodging only if employees voluntarily agree, in writing, to the deductions. And, some states limit how much  an employer can deduct.

by: , J.D.

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