When Can You Withhold Money from an Employee’s Check?

When Can You Withhold Money from an Employee’s Check?

Paycheck DeductionsWe often field questions from our clients about issues relating to employee pay.  Here are some examples of recent questions we’ve had. 

  • “I just realized we’ve been paying a new employee $12.00 per hour instead of the $11.00 that we offered them.  Can we deduct the overpayment from their next check?”
  • “My employee often fails to balance their till at the end of their shift.  Can I withhold their shortage from their check if I tell them in advance that I’ll be doing that?”

When a separation of employment occurs, employers realize it’s their last chance to settle the financial score, and the following types of questions occur:

  • “An employee just walked off the job and they still have a company cell phone, laptop and key to the office.  Can we withhold their final paycheck until they return these items?”
  • “Our business advanced an employee $250 so they could pay their rent.  They’ve stopped coming to work.  Can we repay the company from their final check?”

It’s easy to see how unique paycheck issues can arise.  So, how do we handle these issues without stepping into legal mud puddles?

Know your wage laws, or pay a steep price:

The state’s Department of Labor & Industries is tasked with enforcing rules and regulations relating to workers’ wages.  In 2011, the L&I collected $1.9 million in unpaid wages for employees from Washington businesses.  Pay issues can be contentious and litigious.  But when the regulators are in charge, better to know the rules upfront than to pay the penalties after the fact!

In most cases during the employment period, you are only allowed to deduct from an employee’s wages up to the point where they are still paid minimum wage.  But there are some exceptions to this.

  • If an employee has enrolled in an employer-sponsored benefits plan, the associated deductions may be taken.
  • If you have loaned money to an employee, or provided them with a payroll advance, you may take the repayment from their paycheck.
  • You can also charge the employee interest on the loan, as long as it is a reasonable amount.

Be sure the employee has provided written authorization for all of these deductions!

What can you do if you over-pay an employee?

Regarding the issue of overpayment due to paying an employee a higher wage than agreed upon, under Washington law, you may, in most circumstances, recoup the overpayment.  It must be for either the wrong wage or for the wrong number of hours — you cannot tell an employee their work was substandard and they’re not worth what you paid them.

You have 90 days from the first overpayment to detect it and implement a repayment plan.  You must provide the employee with advance written notice prior to making the adjustment.

Can you dock an employee’s pay for shortages in their till?

Can you tell employees that you’ll be docking their pay for shortages in their till?  The answer to that is a qualified no.

The only time you are allowed to do this is on their final paycheck.  And in this case, there must be established policies the employee is aware of, and the employee must have counted the money in the till prior to and and after their shift, and have been the only person who had access to the cash register during their shift.

The same policy applies to:

  • Breakages
  • Damage to equipment
  • Acceptance of bad checks in violation of a company policy

In all of these circumstances, a deduction may be made only if there is a prior agreement, the incident happened in the final pay period, and the reduction never reduces an employee’s pay below minimum wage.

Can you withhold a final paycheck to force an employee to return company property?

So what about those final paychecks?  Washington’s law requires terminated employees to be paid at the next regularly scheduled pay day.

While you do not have to hand them a paycheck on their last day of work, you may not withhold their paycheck until they have returned company property.  In fact, if you do fail to pay your terminated employee on time, they may sue you in civil court and be entitled to double damages.

If your employees are issued company property, such as safety equipment, laptop computers, cell phones, etc., you should have them sign an agreement that they will return these items upon their termination.

This agreement should contain:

  • Information about the monetary value of the items
  • Terms stating that the employee will repay the company for any items not returned
  • Acknowledgement that this amount can be withheld from their final check

Just remember, for this type of deduction, you cannot reduce their pay below minimum wage.  Small claims court may be your best bet for the rest of the money.

Recovering money from employee payroll advances:

In this economy, businesses sometimes find themselves giving employees payroll advances to help them out with short term financial shortages.  If you do this, document it in writing with the employee’s agreement.  You are able to recover the unpaid portion from a final paycheck, even if the employee’s pay drops below minimum wage.

The wrap-up:

The Department of Labor & Industries will not intervene on conflicts arising about employee benefits.  Sometimes, employers balk at paying unused sick time or vacation time to a departing employee who is leaving under less than optimal circumstances.

While L&I will not become involved, keep in mind that you must follow your company’s policy in a nondiscriminatory manner.  A disgruntled former employee can always sue in small claims court for unpaid employee benefits.

We all remember that old slogan, “You can pay me now, or you can pay me later.”  When you’re dealing with money, it’s easy for emotions to become involved and situations to escalate.  Understanding and following the rules helps everyone know what to expect.