Blog

By Chris M. Mason and Daniel Peabody, Jennings Strouss

Employers should regularly re-evaluate their practices for withholding pay from employee wages. Withholdings mandated by federal and state law, such as for taxes and garnishments, pose little risk to an employer. For many voluntary deductions, such as healthcare and retirement benefits, employees typically provide the necessary written consent. But, what many employers may not realize is that deductions from wages for many other reasons, such as for business-related expenses, recoupment for lost or damaged equipment, policy violation penalties, or repayment of employee loans, may violate federal or state law.

The principal law that employers must consider, the Arizona Wage Enactment, requires employers to timely pay employees all wages due, but permits employers to make limited withholdings from pay. Included among these are withholdings authorized in writing by the employee. Thus, employers should always secure written agreements from their employees when making these types of withholdings.

However, even voluntary written employee authorizations may not protect employers from risk under other laws. For instance, certain withholdings, even if authorized by the employee in writing, may put an employer at risk of violating the Fair Labor Standards Act (FLSA). The FLSA protects the right of non-exempt workers to receive at least the designated minimum wage for every hour worked and overtime pay when it applies. Thus, for many types of withholdings, employers cannot withhold wages if doing so would cause the employee to earn less than minimum wage. Additionally, withholding pay from commissioned and salaried employees who are designated as exempt from earning overtime poses the risk that those employees may be deemed by a court or regulatory agency as non-exempt after the fact. Employers need to ensure that any withholdings from commissions or salaries do not compromise the exemption. Doing so could require the employer to compensate those employees for unpaid overtime and, potentially, double damages dating back years.

Employers should evaluate their withholding practices and policies to minimize their risk. They should adopt sound withholding policies (including FLSA safe harbor language), implement and secure the appropriate signed written voluntary deduction agreements, and educate leadership on the policies and how to enforce them. Employers should also consider whether it is worth the risk of withholding wages for business-related expenses. While it may often seem easier to withhold, rather than chase an employee or former employee, often to court, for these types of expenses, the potential legal ramifications may prove counterproductive.  Caution often is the better part of valor when it comes to handling wage withholdings.

For more information on this topic or other labor law matters, please contact Mr. Mason or Mr. Peabody.
ABOUT THE AUTHORS

Chris M. Mason | Read Bio

Daniel Peabody | Read Bio