By: Riley Richardson
Employers often have reason to deduct various costs or expenses from an employee’s paycheck for uniforms, employee housing, repayment of an employee loan, or food purchased by the employee.
If you are an employer who is considering making a deduction from an employee’s paycheck, you must ensure you are complying with Texas and Federal law.
Many wage deductions require the employer to obtain the employee’s written consent for the deduction, and oftentimes, the deduction may not bring the employee’s pay below the federal minimum wage. This guide will assist with the most common types of wage deductions.
Two broad categories of wage deductions:
Generally speaking, employee wage deductions fall into two categories: 1) Those deductions authorized by a court order, a specific state law or a federal law; and 2) those deductions that are not authorized by a court or specific law, and are instead made with the employee’s written consent.
Common examples of court-ordered or statutory deductions include payroll taxes, child support garnishments, tax levies, or student loan attachments. Common examples of employee-authorized wage deductions include employee loan repayments, housing costs, certain employee uniform costs, and wage assignments.
Employee loan repayments and wage advancements:
Employee loan repayments and wage advancements are categorized as employee-authorized wage deductions. Employers should carefully document and have the employee sign any loan promissory notes or wage advancements statements. Employee repayments of loans and wage advances may take the employee below minimum wage, provided the employer can document the terms of the loan or wage advance. This type of wage deduction must be authorized in writing by the employee to be valid under the Texas Payday Law.
Employee housing or employee meals:
Employee housing or employee meals are categorized as employee-authorized wage deductions. Employers can deduct the reasonable cost of employee housing and meals provided to the employee from an employee’s wages under certain, limited circumstances:
- Employers who deduct housing or employee meals should take care to keep accurate records indicating the cost of the housing or meals, and also carefully track overtime.
- The housing or food costs must be reasonable, which is defined as “not more than the actual cost to the employer to supply the housing or food.” This “reasonable cost” cannot include a profit to the employer. The employer must document this reasonable cost, and the employee should agree to it in writing.
- Compensation for overtime cannot be paid in the form of employee housing or employee meals. Overtime must be compensated to the employee in the payment in dollars.
- This type of wage deduction must be authorized in writing by the employee to be valid under the Texas Payday Law.
Recommended practice regarding employee housing:
THLA recommends avoiding using either a wage deduction or simply including housing in the compensation package of an employee. Instead, THLA recommends executing a separate lease agreement with the employee for housing, and have the employee make a separate lease payment in the same manner as another tenant or hotel guest.
Additionally, note that if the on-site employee is expected to be on-call and housed for the benefit of the employer, this time is compensable and the employee may be non-exempt from overtime pay.
Uniform and uniform cleaning costs:
Employee uniform costs are categorized as employee-authorized wage deductions. It is possible to deduct the reasonable costs of employee uniforms and uniform cleaning costs from an employee’s wages with proper authorization, but be careful regarding the minimum wage.
Generally, wage deductions for hotel uniforms may not take employees below the minimum wage unless the employer provides a sufficient number of uniforms to the employee at no cost. Under the Texas Payday Law, a deduction for uniforms or uniform cleaning costs must be authorized in writing by the employee.
Wage deductions authorized by a court order or by state law:
Certain wage deductions authorized by a court order or by specific law are handled differently from employee-authorized deductions. Common examples are payroll taxes (withholding tax, FICA); bankruptcy court garnishments; court-ordered child support or “spousal maintenance” payments (alimony); IRS tax levies; and guaranteed student loan wage attachments.
This type of deduction does not need to be authorized by the employee to be valid under the Texas Payday Law. Deductions for court-ordered garnishments and other wage attachments required by law may take an employee below minimum wage. Employers should be very careful to document these authorized deductions and keep this documentation on file in the event of a DOL audit.
If you would like a sample employee wage deduction authorization form, or if you have more questions or need more information about wage deductions or other personnel issues, do not hesitate to contact THLA’s legal team: 512-474-2996, email@example.com.