When is it legal to deduct from an employee’s pay?

There are many instances an employer might want to deduct money from an employee’s paycheck. This practice is often known as “docking pay.” When this happens, employees often wonder: can my employer deduct money from my paycheck without my permission? In most states, there are strict rules about when this is or isn’t allowed. This article examines some of the common scenarios when employers might be able to dock pay without their employee’s consent.

Important: The rules described in this article vary widely depending on your state. Under federal law, only a few specific rules restrict an employer’s ability to deduct pay. In states like California, on the other hand, there are many rules on this topic. Union contracts or unique employment agreements may also influence how these rules apply to you. Keep in mind that where you live and work will affect whether most deductions are allowed. Read more about the general differences between federal and state law.

Docked Pay vs. Required Deductions

Some deductions are required by federal, state, or local law. For example, employers must deduct FICA withholdings for Social Security and Medicare contributions. Most states require additional deductions for things like unemployment or disability insurance. In some cases, a court can order an employer to deduct from someone’s pay, such as to pay child support. For required deductions, employers never need an employee’s permission to deduct pay.

Pay deductions for being late or missing work

Docked pay for being late or leaving early

Whether an employer can deduct pay for being late depends on whether the employee is paid hourly or salary.

Hourly employees are only required to be paid for the hours they work. So, if an hourly employee comes in one hour late to work, they can be paid for one hour less on their next paycheck.

For salaried employees (sometimes called exempt employees), pay cannot be deducted for being late or leaving early. This is because salary pay is not supposed to depend on hours worked, which is why these employees do not receive overtime pay. For businesses that offer paid time off (PTO), missed hours can be deducted from PTO. However, if an employee has no PTO available, pay cannot be deducted for partial missed days.

Note: There is an exception to this rule for salaried employees on a reduced work schedule under the FMLA (Family and Medical Leave Act). Employers can reduce salaries on a pro-rata basis while this type of schedule is in place.

Docked pay for missing work

For hourly employees, employers only have to pay for actual hours worked.

For salaried employees, employers can deduct pay for missed full days in some circumstances. If a salaried employee has used all their PTO, their employer can deduct pay for any additional full days missed. For companies that do not offer PTO, full missed days can be deducted from pay unless the absence was due to sickness or accident.

Pay deductions for uniforms or equipment

Pay deductions for uniforms

Many states require employers to pay for uniforms in all circumstances. Some states allow employers to deduct pay for uniforms up to a certain amount (e.g., $50 in Minnesota). Additionally, some states allow deductions to pay for uniforms only if the uniform is suitable to wear outside of work (i.e., the uniform is a plain outfit that does not carry the employer’s logo).

Federal law does not prohibit deductions for uniforms, as long as the deduction doesn’t lower the employee’s wage below minimum wage. For workers who earn the federal minimum wage, employers cannot require them to pay for uniforms.

Pay deductions for other required supplies or equipment

State laws often restrict deductions for supplies and equipment. Some states require employers to pay for all required supplies and equipment. Even in states where employers can pass the cost of supplies onto employees, they might not be allowed to use paycheck deductions to accomplish this.

Federal law for whether an employer can deduct pay for supplies is the same as for uniforms. These deductions are allowed under federal law as long as they do not lower a worker’s pay below minimum wage.

Pay deductions for cash shortages and missing or damaged items

Docked pay for cash register shortages

In most states, deductions for cash register shortages are only allowed in limited circumstances. Some of the common rules that states adopt for when deductions are allowed include:

Employee gives consent to deduct the cost of cash shortage from paycheck
Employee admits they are responsible for the cash shortage
Employee acted negligently (was unreasonably careless), often as determined by a court or labor department hearing
Employee intentionally stole the cash

A few states do not restrict this type of deduction at all. Under federal law, docking pay for cash shortages is not allowed if an employee’s wage will be less than the federal minimum wage after the deduction. A few states have similar laws which prohibit deductions that will bring pay below state minimum wage.

Docked pay for missing or broken items

The rules for missing or broken items are similar to the rules for missing cash. Depending on your state, this type of deduction might be allowed if:

Employee gives consent to deduct the cost of merchandise from paycheck
Employee admits they are responsible for the missing or broken item
Employee acted negligently (was unreasonably careless), often as determined by a court or labor department hearing
Employee intentionally stole or broke the item

A few states do not restrict this type of deduction at all. This type of deduction is not allowed if it will bring an employee’s pay below the federal minimum wage. A few states have similar laws for their state minimum wages.

Pay deductions for poor performance or breaking rules

Docked pay for poor performance or mistakes

Employers are not allowed to dock pay for poor performance. If the employee’s mistake leads directly to a loss of cash or merchandise, then the rules for lost cash or damaged items will apply. Otherwise, businesses cannot dock their employees’ pay for this reason. However, an employer can decrease pay on a going-forward basis with notice to the employee (as long as pay remains above minimum wage). They cannot adjust pay for time already worked.

Docked pay for breaking rules or violating policies

Employers cannot dock pay for violating workplace rules or policies. Pay can be adjusted on a going-forward basis, or an employee may be fired. Employees may be placed on unpaid suspension for violations of important policies, like safety or harassment policies. However, docking pay for hours already worked is not allowed for breaking workplace rules.

Pay deductions for overpayments, advances, or loans

Pay deductions to correct overpayments

If an employer accidentally overpays on one paycheck, they might want to deduct the overpayment on a later paycheck. States generally allow deductions to recover overpayments, but often with limitations. These limitations might include:

Limits on timing: Some states only allow deductions to correct overpayment on the next paycheck following the error.
Limits on amount: Some states allow deductions for overpayment as long as the deduction isn’t over a certain percentage (e.g., 10%) of the overall check.
Consent: Other states allow deductions to correct for overpayment as long as the employee agrees in writing.

Pay deductions to pay off advances or loans

Federal law and most states allow deductions to repay loans and wage advances. Under federal law, this type of deduction is allowable even if it brings a worker’s wage below minimum wage.

However, some states restrict when employers can deduct pay to repay advances or loans. For example, New York requires a written agreement that outlines the frequency and dollar amount of deductions to pay back a loan. The employee must agree to the deductions, in writing, before the deductions are made.

What can happen if an employer illegally docks pay without permission?

Unpaid Wages Claim

Illegal deductions from a paycheck could result in a claim for unpaid wages. An employee who believes money was improperly deducted from their paycheck can sue their employer for the missing wages. They may also be able to recover attorney’s fees and additional damages.

State or Federal Labor Investigation

In some cases, the federal Department of Labor or the state equivalent will investigate employers for failing to pay proper wages. These investigations are sometimes initiated by an employee complaint. If this happens, the federal or state government might seek to help employees recover lost wages, plus levy additional fines on the employer.

Loss of Exempt Status for Salaried Employees

Improper deductions from salaried employees’ paychecks could cause them to lose exempt status. If that happens, their employer will have to pay for any overtime hours worked by those employees. Note: this will not occur if the improper deductions were accidental or infrequent. In those cases, the employer will be able to avoid losing exempt status by simply paying back the deducted amounts.

Conclusion

State and federal laws regarding pay deductions can be tricky to navigate. If you are an employer and considering making deductions from an employee’s pay, consult with a labor attorney or consider an alternative way to achieve your goal. If you are an employee whose pay was docked illegally, consider consulting a labor attorney or contacting your state labor division.