Can an employer deduct money from their employee’s paycheck?  Most people know that the employer can do so when required by federal or state law, as in the case of withheld federal income tax, social security tax, and Medicare tax.  However, in limited circumstances an employer can deduct money from employee paychecks if the employer overpaid the employee.  The employer can only do this is if (1) the overpayment was inadvertent, (2) overpayments by the employer are infrequent, and (3) the employer discovers the overpayment and corrects it within 90 days.  The employer also has to provide advance written notice to the employee along with documentation of the overpayment before the adjustment is made.  And the overpayment must be based on objective criteria such as the number of hours worked or salary due.  An employer cannot deduct money from a paycheck because of disagreements about the quality of work performed.

An employer usually cannot make deductions from their employees’ paychecks as reimbursement for a customer’s bad check or credit card, cash register shortages, damage to or loss of company equipment, or if a customer walks out, steals money or doesn’t pay a bill.  In other words, the risk of customers not paying and the like stays with the employer, and the employer can’t make the employee pay for those losses.

However, if it is the employee’s final paycheck before leaving the employer, and the employer and employee have agreed to the deduction, an employer can deduct money from the final paycheck to cover a cash shortage in the till, the cost of lost or damaged equipment, the loss from acceptance of a bad check or credit card purchase, or worker theft, but only if it occurred during the final pay period.  The practical effect of this is that if the employer catches an employee stealing or intentionally damaging company property, it can make an agreement with the employee whereby the employer reimburses itself from the employee’s final paycheck and fires the employee.

By Peter Hawkins – Associate Attorney

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