Fluent in Practice Management

As an employer, it’s essential to understand the legal framework surrounding paycheck deductions. States have strict rules to protect employee wages, and non-compliance can lead to penalties. Here’s what you need to know to stay compliant.

When Are Paycheck Deductions Allowed?

Law permits deductions from employee wages only under specific conditions. As an employer, you may only withhold, deduct, or divert wages if one of the following applies:

1. Deductions Required by Law
   • These include federal and state income taxes, Social Security, Medicare, and court-ordered garnishments or related fees.
2. Deductions for the Employee’s Private Benefit
   • Examples: health insurance premiums, retirement contributions.
   • Requirements:
     • You must obtain written authorization from the employee.
     • The deduction must be recorded in your books and records.
3. Voluntary Deductions Not Paid to You
   • These include charitable contributions or payments to third parties.
   • Requirements:
     • The employee must authorize the deduction in writing.
     • You must not be the ultimate recipient of the funds.
4. Collective Bargaining Agreements
   • Deductions outlined in a valid union agreement are permitted.
5. Repayment of Cash Loans
   • You may deduct from a final paycheck to recover a cash loan if:
     • The employee voluntarily signed a loan agreement.
     • The loan was for the employee’s sole benefit.
     • Additional legal limitations are met.

Prohibited Deductions

You may not deduct wages for:

• Equipment or uniform costs
• Cash shortages or breakage
• Meals or lodging unless for the employee’s benefit and authorized in writing
• Any loss due to employee negligence or theft—even with written consent

Pay Stub Requirements

Each paycheck must clearly identify all withholdings. This includes:

• The type of deduction
• The amount withheld
• The reason for the deduction

Transparency is not just good practice—it’s the law.