Employers often struggle over compliance with state wage deduction laws, and these potential violations carry with them considerable penalties. In Massachusetts, for example, employers face triple damages for violations of wage and hour laws. This post uses hypothetical examples to demonstrate how narrow the range of permissible activity is under California, Massachusetts, New York, and Washington D.C. laws even when a deduction to an employee’s salary appears as a common sense one or otherwise fair to both parties involved. Employers with employees located in these and other states should consult with legal counsel before making any deductions from employee wages, even if the employee authorizes such a deduction.
So, for example, can employers deduct from employee wages for the cost of uniforms? Personal expenses on corporate credit cards? Broken printers? Let’s explore…
Hypothetical A: The Company requires that Cheryl wear a uniform to perform her job. The Company provides the uniform to Cheryl during her orientation and deducts the costs of the uniform from her first paycheck. Is this permissible?
- In California, the Company may not deduct the cost of Cheryl’s uniform from her first paycheck. Instead, the Company must pay the cost of the uniform and any maintenance. Labor Code Section 2802, Industrial Welfare Commission Orders, Article 9, Section 9. The term “uniform” includes wearing apparel and accessories of distinctive design and color. The Company may require Cheryl to provide a reasonable security deposit or, with Cheryl’s prior written authorization, deduct the amount of the uniform from Cheryl’s last paycheck in the event that she does not return it within a reasonable time after her separation from employment with the Company. The Company may not, however, make any deduction at any time for the normal wear and tear of Cheryl’s uniform.
- In Massachusetts, the answer is the same – no deduction from the first paycheck. In Massachusetts, the Company must pay the cost of the uniform as well. 454 CMR 27.04(4). If the uniform requires dry-cleaning or other special treatment, the Company must reimburse Cheryl for these costs; however, no reimbursement is required if Cheryl is able to wash her uniform with her other garments. The Company also cannot require Cheryl to provide a security deposit to receive her uniform at orientation.
- In New York, we reach the same result. The Company must also pay the cost of the required uniform and any maintenance. 12 NYCRR 142-3.5(c). A required uniform includes specific name brands or clothing details and is different from a dress code. The Company must launder Cheryl’s uniform or pay Cheryl a specific amount each week, in addition to her regular wages, to clean her own uniform. Depending on the nature of the industry in which Cheryl works, there are specific wage orders that govern the cost and maintenance of uniforms. Employers in the hospitality industry, for example, must comply with strict requirements. 12 NYCRR 146-1.8.
- In Washington D.C., the Company may not deduct the cost of Cheryl’s uniform from her first paycheck. As in the states listed above, the Company must pay for the purchase and maintenance of any required uniform. DC Wage-Hour Rules Ch. 9 Sec. 908. In lieu of purchasing and/or maintaining the uniform, the Company may pay Cheryl an increased hourly wage (between $0.08 and $0.15 per hour, up to $6.00 a week) in addition to her regular wages.
Hypothetical B: The Company provides a corporate credit card to all executives for business related expenses and requires each executive to sign a general authorization to deduct any unpaid credit card balances from regular wages. Max, a Company executive, uses his corporate credit card to pay for his fortieth birthday dinner during his last week of employment with the Company. The Company reviews the bill, identifies the charge for Max’s birthday dinner, and deducts the amount from his final paycheck. Is this permissible?
- In California, the Company may not deduct the amount of Max’s birthday dinner from his final paycheck, despite his signed general authorization. See Barnhill v. Robert Saunders & Co., 125 Cal. App. 3d 1, 6 (1981). As a California employer, the Company cannot deduct from Max’s final paycheck and exercise greater self-help rights than ordinary creditors as this is considered a prejudgment wage garnishment that deprives Max of due process. Instead, in most circumstances, the Company is required to go to court to collect the debt owed by Max. Since the Company may only make those deductions from wages that Max expressly authorized in writing to cover insurance premiums, benefit plan contributions, or other deductions that directly benefit him, the general authorization to deduct unpaid credit card balances is not permitted under California law.
- In Massachusetts, the Company may not deduct the amount of Max’s birthday dinner from his final paycheck unless Max provides express written authorization at the time the deduction is made. Blanket authorizations are permitted if the deduction is required by state or federal law (i.e., for taxes) or inures to Max’s benefit (i.e., one advance authorization is sufficient for deductions for monthly health insurance premiums). Mass. Gen. Laws ch. 149, § 150A. Here, since a blanket authorization is not permitted to deduct for a personal expense, the Company must obtain Max’s express written authorization for the exact amount of the deduction before it is made.
- In New York, the Company may not deduct the amount of Max’s birthday dinner from his final paycheck even if Max provides express written authorization at the time the deduction is made. The Company can only make deductions that are specifically enumerated under the wage deduction law and its interpreting regulations (e.g., deductions to cover Max’s portion of a health insurance premium) with his written authorization. New York Labor Law Section 193; 12 NYCRR 195.
- In Washington D.C., the Company may deduct the amount of Max’s birthday dinner from his final paycheck unless the payment reduces his wages below the minimum wage. DC Wage-Hour Rules Ch. 7 Sec. 915. Since the law does not explicitly address wage deductions in this context, the Company should comply with best practices and ensure its employee handbook clearly details its practices around deductions, provide appropriate notice to Max and seek his express authorization (either oral or written) in advance of the deduction, and include the itemized deduction on Max’s final pay stub.
Hypothetical C: There is a color printer located on each floor of the Company’s office. Megan, frustrated that her presentation will not print, pulls out the drawer and accidentally breaks the printer. Megan reports that the printer broke when she tried to fix the paper jam. The Company hires a specialist to come into the office to replace the broken drawer and repair the printer. The Company deducts the service charge from Megan’s next paycheck. Is this permissible?
- In California, the Company must pay the service charge. See DLSE Enforcement Manual § 11.2.4. The Company cannot make any wage deduction or require reimbursement from Megan for breaking the printer (or any equipment) as California courts have found that equipment breaks in the ordinary course of any business operation. There is an exception if Megan broke the printer in a dishonest or willful act, or in a grossly negligent manner. Here, Megan broke the printer by accident or mistake and, at worst, as a result of simple negligence.
- In Massachusetts, the Company must pay the service charge and may not deduct the amount from Megan’s paycheck. Camara v. Attorney General, 458 Mass. 756 (2011). Massachusetts prohibits deductions from wages unless they are valid setoffs for clear and established debts. The amount of the service cost, or any damage to the Company’s property in any form, is not a clear and established debt owed by Megan to the Company.
- In New York, the Company again must pay the service charge. 12 NYCRR 142-2.10. The Company cannot make any wage deduction from Megan for breaking the printer (or any equipment) and cannot enter into a separate agreement with her to repay those amounts, an arrangement that would essentially circumvent the deduction.
- In Washington D.C., the Company must pay the service charge. DC Wage-Hour Rules Ch. 7 Sec. 910; D.C. Dept. of Employment Services FAQS. The Company is not permitted to deduct from Megan’s wages due to damages to Company equipment.
Employers should think twice before making any deductions from employee wages and confer with local counsel on the applicable state requirements. National employers cannot take a one-shoe-fits-all approach to these deductions, as there is significant liability that attaches to these violations.