VANNOY:

Illegal versus legal reasons to deduct wages from employees. This is an area where so many employers can really get themselves in trouble. You, you might be really well intentioned, and maybe you’re just setting up a deduction for a trip that everyone’s taking together, or maybe a birthday or a Christmas club well intentioned. There are some consequences we need to unpack and you understand how to do those things right. But more importantly, so many employers get themselves in hot water in this area because of an employee leaving for not good reasons. Maybe it’s unfavorable terms, whether you fire them, they quit and they owe you equipment. They owe you work effort, they owe whatever. And employers can really get themselves in hot water, whether they’re trying to do the right thing or even just grab their pound of flesh out of this thing if you do it wrong.

So, really, really important topic. All entrepreneurs, all small business owners really need to understand this because this is probably one of the biggest areas where employers can get themselves in legal hot water. So my guest today, Brian Shenker, who’s an attorney at Long Island, New York, office of Jackson Lewis. Brian practices Brian’s practice focuses on representing employers in a wide range of workplace matters, as well as pre as preventative advice and counseling. Brian has extensive experience defending class and collective action lawsuits under federal and state wage and hour laws. He has successfully defended wage and hour audits conducted by the US and New York State Departments of Labor. And Brian regularly handles cases before courts and administrative agencies involving claims of discrimination, sexual harassment, and retaliation. Welcome back to the show, Brian.

SHENKER:

Thanks for having me, Mike.

VANNOY:

All right. So let’s do here’s how I want instruct construct today. I want first explain kind of the consequences of not doing this very simple thing, right? And then I think if I have it right there, there, there’s more technically, but there’s really two big federal laws that kind of govern this area. I wanna talk about what those are, and then really, let’s make this our, as practical as we can use case by use case when this happens, what can we do? Can’t we do when this happens? What can we do? Can’t we do? So let’s just start out and we, we don’t wanna unduly scare anybody, but, but set expectations. What bad thing happens if, if you wrongly deduct wages from employees?

SHENKER:

Yep. So, yeah, the, the repercussions can be pretty severe. So, you know, when you’re talking about you know, non-exempt hourly employees, if we have, you know, improper deductions number one, you, you may then need to pay back those improper plus penalties. But it can also lead to, you know, issues of, you know, potentially unpaid minimum wage, unpaid overtime. And so we get into those other, you know, unpaid wage issues under the FLSA and the, the various state laws, which have, you know, liquidated damages, attorney’s fees. And, you know, similarly for your exempt employees as we’ll, get into those salaried employees, you know, improper deductions can destroy their exemption from overtime and can actually even go so far as destroying the exemptions for other employees in that classification. So, you know, these are often things that an employer doesn’t think are, you know, such big issues, but, you know, they, they can have, you know, wide ranging effects.

 And, and as you mentioned too, you know, one area that that we’ll discuss is, you know, deductions made at the time of termination. And, you know, that’s something where I always try to guide employers away from, you know, making, you know, deductions certainly that are improper but even considering proper deductions at the time of termination because that can lead to an employee, you know, having a bad taste in their mouth, you know, going to see an attorney or a Department of Labor, you know, and asserting a claim that was really caused by, you know, the company, like you said, wanting their pound of flesh. So maybe it was a two or $300 issue they deducted and, and now they get themselves into a wage and hour audit. So, so, and, and even

VANNOY:

If it’s not a pound of flesh, maybe the employer thinks, Hey, that’s, that, that’s only a $200 a piece of equipment to you. That’s $200 outta my pocket. That’s a lot of money to me. Mm-Hmm. <affirmative>, it’s not a pound of flesh. I think it’s simply fair. But the, the aggrieved employee perceives that, oh, they’re just trying to get their pound of flesh, and whether they’re right or whether they’re wrong, that’s the trigger event. That’s the hook to, to all of a sudden initiate action.

SHENKER:

Yeah, exactly. And, and we’ll talk about how to make these deductions, deductions. Cause sometimes, you know, a deduction might be permissible, but if done in a certain way, or, you know, per given, you know, with a written notice or, you know, subject to a cap and if you know an employer, you know, isn’t aware of those and, you know, does otherwise permissible deduction, but say in the wrong amount, too high an amount, it’s just, you know, it can be just as tough consequences there. So, you know, it’s, it’s very important, you know, there’s, you know, the federal laws we’ll discuss and then, you know, state laws here. So there’s a lot of things for employers to look at. You know, don’t just assume that, you know, the federal law doesn’t say anything about this. I’m, I’m good. You know, this is one area where you know, different states adopt different policies concerning different types of deductions. So a multi-state employer may have to have multiple policies or, or go with the, you know, the, the lowest threshold of policy. You know, and those who are just in a singles state’s,

VANNOY:

Let’s, so always you have to file, follow local laws, right? You, you, you, you, you never get to break the law because a local is different than a state, different than federal. But let’s start out maybe in the, in the narrowest scope here for a single location single state employer that doesn’t have local or state regulations on this. What are the two big federal laws that kind of govern this area of deducting wages and what’s permissible?

SHENKER:

Sure, sure. So much of our discussion will be around the Fair Labor Standards Act, the FLSA as you know, we’ve touched upon you know, in other conversations because the FLSA does address you know, when deductions or the amount of deductions that can be made. And there’s also the Consumer Credit Protection Act which title three of that federal law governs how wage garnishments apply to employers. You know, if some employers may have never seen that, some may, you know, at some point have gotten a, a garnishment, and they look at it and they say, I have no idea what to do with this. And it’s, you know, as we get into, you know, not something to throw out and just ignore there are, you know, requirements for employers there. But I think the best place to start is probably the FLSA where, you know, hopefully you know, our listeners are a little more you know, have some understanding and some background on that law

VANNOY:

And if, and if they don’t, and

SHENKER:

When we talk about deduction,

VANNOY:

And if they don’t, they need to. Cuz it governs almost everything we do in payroll and human resources, right?

SHENKER:

That that’s right. That’s right. So, if you’re not you know, give Mike a call. Give me a call, reach out to you know, Asure and, and have someone explain it to you. But, you know, when we talk about the FLSA we’re, you know, deductions work and have consequences in different ways for exempt employees and non-exempt so we’ll, we’ll start with non-exempt employees because the FLSA a really has not as much to say necessarily about deductions from non-exempt employees pay. And again, as I mentioned before, non-exempt means, you know, these are your hourly rate employees who are entitled to overtime. And generally, you know, under the FLSA it doesn’t necessarily regulate what types of deductions can be made from wages. It more so limits, you know, how much, you know, deductions can be made. So, you know, again, you know, we’re, we’re not considering state here.

So, you know, the, the main thing that the FLSA tells us about deducting anything from an hourly employee’s wages is that generally deductions will be a violation of the FLSA if they bring the employee’s hourly wage below the minimum wage. And so right now we’re talking about seven and a quarter as a federal minimum wage. And so, you know, that’s something where, you know, if an employee is being paid at that minimum wage, and you’re going to take an otherwise permissible deduction from, from that person’s pay, let’s say for, you know, the cost of a meal, you know, you’re gonna be limited if, if they’re right at the minimum wage. So, you know, if someone’s paid 7 75, all right, then you have 50 cents per hour that you could deduct while keeping them above the minimum wage.

 But of course, if, you know, there’s a minimum wage violation if you go beyond that you know, federal law also, I mean, look, there’s certain required deductions under federal law such as, you know payroll taxes and such. So, you know, obviously employers must take out, you know, those income tax withholdings from gross pay, right? But, you know, under the FLSA you know, there, you know, there are a number of deductions that are actually, you know, expressly permissible under the FLSA such as, you know, deductions, co covering the co the employer’s you know, fair value or reasonable cost of lodging that’s provided to an employee or for meals that are provided to an employee. Again, in, in conjunction with the other federal law, we’ll discuss the FLSA permits deductions, you know, by that are required by law, such as for tax or wage garnishments.

 And look, as will be a common topic, you know, the FLSA permits deductions that are authorized by the employee you know, will discuss as we go in that, you know, oftentimes what’s, you know, may be required is that a deduction is for the benefit of the employee, not always the case. But, you know, certainly, you know, the FLSA for non-exempt employees, you know, that that’s really it, you know, we keep in mind the minimum wage issue. And other than that, it’s, it’s not restricting employers from, from many deductions for those hourly rate employees.

VANNOY:

So, Brian, I, I’m trying to resist going down a million rabbit holes here. FLSA is the federal level, right? So a lot of states and locals have minimum wages, $15 an hour in, in climbing does, I’m assuming what you can or can’t deduct. And what dropping below that minimum wage threshold will just depend on your local regulations and how those minimum wage laws are written different than the federal standard. Is that accurate?

SHENKER:

Right. Exactly. And so, as we typically say, right, the FLSA, you know, sets the floor and, you know, states can go above that. So, you know, there may be some states that, you know, say, you know, the, you know, you’re not allowed to go below the state minimum and wage with deductions except in, you know, certain circumstances. So yeah, that’s something that we’ll often see. Don’t just think, you know, for instance here in New York, right there, there are areas of the state that have a $15 minimum wage. So, you know, employers, for example, should not assume that I’m paying $15 an hour to my employee. I can take all the deductions I want down to, you know, 7 25 an hour, because they’ll still be making the federal minimum wage that that may be the case in some states. But, you know, in, in others, you need to understand, you know, what limit the state has on potentially going under their you know, higher minimum wage.

VANNOY:

So, Brian, I’m gonna break my own rule. I’m gonna jump to a couple use cases just cuz I want to clarify around this whole you can’t go below the minimum wage. So again, we, we give everybody the benefit of the doubt as we assume no one on this is watching this show, thinking how can they squeeze the little man here, but how, how do they stay compliant? So if you’re running, maybe you’re running a cleaning business, some type of business that you need to supply a uniform and just the nature of the industry and the thin margins you operate on, maybe, maybe you are truly federal minimum wage employees, 7 25. And you wanna set up a deductions. So the employee pays for the uniform, the cl, the clothes, the shirt, the pants, the boots, what safety boots, whatever it might be. Basically any of that you do the deductions cannot take them below that 7 25 minimum wage, correct?

SHENKER:

Exactly, exactly. So, right in the context of uniforms, right, the, you know, any permissible deductions cannot reduce that employee’s hourly rate under the minimum wage.

VANNOY:

No. Now, besides, besides a payroll deduction, can you still, as an employer, require the employee to pay for out of their own pocket, said uniform or safety booths, or whatever the case may be?

SHENKER:

So typically, the, the typically the answer will be no, because essentially, you know, forcing the employee to pay for something that’s required is tantamount to, you know, a deduction itself. There, there may be situations where that’s permissible. For instance you know, OSHA seems to state that, you know, if for instance some safety or protective equipment is provided free of cost by the employer to the, and then that’s lost or, you know, and, you know intentionally ruined by the employee that under certain circumstances the employer could require the employee to pay for a replacement. But yeah, typically you know, the cost of the uniform o other than for instance, you know, casual, you know, wear that, you know, could be worn by the employee, you know, outside of work. But, you know, uniforms that are something other than that are, are typically, you know, considered a business expense of the employer.

And, you know, if the employer requires the employee to bear any of that cost, you know, we’re talking about something that can’t cut below their, their wages. Now, you know, there are states that, you know, treat this differently. You know, for instance you know, in New York, there’s a somewhat complicated way that the state goes about this. You know, so for instance, you know, we don’t wanna forget about cleaning. So, you know, when you’ve given, you know, there’s the one issue of providing a uniform to employees. And then there’s a second question of who’s responsible for the laundering of that. And if it’s the employee, are they getting paid for that? And different states will treat that differently. In New York, for example you know, more or less any, you know, let’s say you give an employee a polo shirt that has the company’s logo.

Well, even though they could wear that polo shirt outside of, you know, business time, the fact that it has a logo on it makes it a uniform. So let’s say, you know, they have that uniform and now, you know, they have three or four of those shirts and the employee needs to launder them. In New York, there’s actually an allowance that employers are required to pay to employees in any work week in which the employee has to launder their uniform. And I, I won’t get into the specifics for those New York employers out there but it depends on the number of hours that week that the employee works. And of course, there’s an option that employers can offer a free laundering service. But you can see that certainly the idea of a uniform doesn’t necessarily end at, you know, the company providing, say, you know, a free of charge uniform. You know, the company should consider you know, what time and expenses that employee might have with respect to, you know, maintaining that uniform. And state law could dictate that the company needs to pay additional amounts above the minimum wage to cover that.

VANNOY:

Brian, let me, lemme ask this. So and it’s, again, it’s a pretty wonky use case, an example here mm-hmm. <Affirmative>, but I, I really just want to get an understanding of this. My, the fact that my deductions can’t take someone below the minimum wage, and, and where I’m ultimately going here is over what period of time. So, for example, if I have a new hire, I might maybe they require a set of specialized tools and I give them a, a, a toolbox filled with all these specialized tools that if I did a deduction biweekly payroll, so I, I I, I took, took out you know, 10 bucks per over for each of 26 pay periods in the year, it’s $260 in equipment, then I didn’t take them below. But if I charge them the full $260 on their first paycheck, I took them below. What, how, how does, what, what does the threshold look like to stay compliant here?

SHENKER:

Yeah. So that, that’s a great point. And what you brought up is a creative solution that is permissible under the FLSA in how to structure deductions from wages. And that, like you said, to avoid bringing them the employee under the minimum wage in that one week by doing, you know, a $260 deduction, right? Yeah. An employee can prorate the deductions and spread the cost of, you know, a uniform or whatever, you know, the, the, the cost is over a number of pay periods so that the wages aren’t reduced. Now, you know, some, you know, the FLSA doesn’t necessarily require this some states will, even those that don’t, ID suggest that, you know, when you’re making a deduction, you’re gonna put something in writing to the employee to explain what it is. And, you know, typically there should be some, there’s gonna be something on payroll on their pay stub to show that.

 But, you know, especially in the case where there’s going to be, you know, multiple deductions, you know, over some time, you know, that’s something you wanna put in writing to an employee, right? They, they shouldn’t just be looking at their pay stub and seeing what that line item, you know, deduction is for, you know, that’s something that should be communicated, you know, at the time, for instance, you know, the uniform is provided to the employee that, you know, give them a notice saying, you know, a deduction of X dollars will be made over X number of pay periods for a total deduction of, you know, you know, $20 per week or, or whatever that may be.

VANNOY:

Yeah. Okay. So two laws. First one is FLSA. The major punchline is here, whatever you do for deductions FLSA doesn’t necessarily prevent you from doing deductions, but it says you cannot implement any type of deduction that takes someone below their calculated minimum wage. Right? Is there anything about else about FLSA before we move on to CCPA?

SHENKER:

So, yeah, I, I think under the FLSA, I just want to touch on, you know, how it impacts and what it says about deductions for exempt employees. Yeah. So, you know, generally when we’re talking about exempt employees for the purposes today, you know, we’ll focus on the white collar exemptions, right? The executive, administrative

VANNOY:

And professional give, give 15 seconds to recap for folks most know, but just in case, what is exemption versus not exempt?

SHENKER:

Sure. So the general rule under the FLSA is that all employees are entitled to overtime at time and a half their regular rate when they work over 40 hours. So those are your non-exempt employees. They are entitled to overtime. The exception to that rule is for exempt employees who meet certain tests, whether it’s a duties test, a salary test, or, or other tests, that then if they meet those tests, the loss typically says you can pay that an employee, you know, a salary, and they’re not entitled to overtime. So, you know, that thousand dollars per week salary covers, you know, all, you know, all the work they would do, and you don’t pay them, you know, anything extra depending on, you know, the number of hours they work. Okay? So here we’re talking about those exempt salaried employees now and how, you know, deductions will impact them.

 And this is actually something that, you know, many employers are not aware of, that improper deductions to their exempt salaried employees can jeopardize the exemption, which means, you know, a a, an improper deduction here could result in that employee in fact being entitled to overtime pay. In addition to the salary you’ve already paid them. So, you know, real quickly, and again, you know, this is, we’re, we’re not gonna go through the whole FLSA here, but you know, for our white collar exemptions, there’s a duties test, then a salary level test, which, you know, they need to be paid above a certain level. Correct? And there’s a salary basis test, which is the most basic requirement is this person actually paid a salary. And so the impact of improper deductions means that, you know, the law will consider they’re not necessarily paid a salary and they’re gonna be paid overtime.

 So I, I go through these, yeah. So for instance absences for personal reasons, right? So not a sickness or disability, just, you know, I, I want a day off, I’m taking a day off. So, you know, for exempt salaried individuals, the employer can only take full day deductions for absences from work. So, for instance, you know, if an employee, if an exempt employee, a salaried employee comes into work on Monday, and you know, they don’t feel well, they leave after an hour. The employer, you know, if we’re talking about an hourly employee, right? You, you would, they, they would not be paid for the time that they were not working, right? But for an exempt employee, they worked that day. They get paid for the full day. You can’t deduct a partial day’s pay for, for this type of absence. And for most other deductions for absences under the FLSA, you know, full day deductions are what’s required. So that, you know, really the flip side of that is what I’m trying to say is that if an employee shows up for work and then goes out, whether it’s, you know, an absence for sickness or a personal day, you can’t de you can’t make a deduction for their pay.

VANNOY:

I wanna, cause I think this is hugely important, right? Yeah. So if you’re an employer, let’s say you got 25 employees and you got a, a, a supervisor who is a, a salaried in by all, all of the tests, they qualify as an exempt employee, they work probably 50 hours a week. And so, but you don’t pay overtime cuz it’s a salary job. They make enough money, et cetera, et cetera. But if that supervisor extends lunch on Fridays an hour each day, and you don’t, you’re not happy about it, you maybe have even written them up and give them a, a, a warning saying, Hey, you need to be, you need to be back supervising the work and, and, and performing the tasks. You can’t take an extra hour. You can’t deduct that one hour because your behavior has now indicated you’re really paying this person hourly. And if they complain and this ends up in, in a, a Department of Labor audit, you’re gonna be on the hook to pay overtime for that, that 50 hours, that extra 10 hours a week going back possibly years, possibly for all people that worked for you, even though they weren’t complaining about the situation. I’m not, I’m not overstating that, am I?

SHENKER:

No, you’re not. The the consequences are really strict here in that and again, there, there is a safe harbor provision, I’ll, I’ll address, but yet improper deductions, you know, for one employee, not just do not just impact that employee’s exemption. If the employer is found to have an actual practice of making improper deductions from exempt employees salaries, then the employer will lose it potentially entirely for, you know, everyone in that classification. Obviously, you know, there are a number of factors, you know, how often are the deductions being done? You know, the amount, you know, what’s the time period when these are done? You know, so there could be a defense if you have, you know, one rogue manager who’s been doing this for a month or two and you just figured out and corrected it, you know, maybe that’s limiting it enough.

But you know, again, you know, the number of managers, right? If it’s more than one manager doing it, that looks like a company policy as opposed to, you know, one manager, right? Maybe, you know, getting it wrong. Right. So yeah, we really need to be careful in, in taking deductions from, from our exempt employees. And, and I guess the, the other one I wanna mention is even if it’s a sick day right, or a disability and, and the exempt employee is taking a full day off, that’s fine. Again, we’re talking full day increments, but the company must have a bonafide plan or policy that it’s making the deduction in accordance with. So what does that really mean? That you should have a handbook, you should have a policy that provides for, you know, what’s going to happen when, you know, an exempt employee is absent for various reasons.

 Because then that’s what’s required by the FLSA in order to even make that full day deduction for a sick, you know, someone out being out sick be, you know, legitimate and valid. Right? you know, there, there are a number of other, you know, absences, types of deductions, you know, that can, you know, impact you know, exempt employees, I’ll, I’ll just go through them real quick. Cuz it’s, it’s difficult to, you know, get an everyone. But for instance, you know, F M L A absences this is one where it goes outside that rule of full day increments because for those who know that, you know, under the F M L A employees can take intermittent F M L A leave which means an employee could be out, you know, take unpaid F MLA leave for, you know, two hours a week or three hours a day, something, you know, maybe it’s just to go to their appointment or dialysis, something like that. Where, you know, they only need a few hours. In that case under the F M L A F M L A protected leave, you know, deductions of, of you know, the proportional amount of pay can come out, got in less than full day increments. But other than that we’re really looking at, you know, other types of absences. You know, you should presume it should be a full day increment and nothing less.

VANNOY:

So if I can just kind of recap on FLSA, the two big components here that employers really need to understand, you cannot deduct wages. So FLSA does not prevent you from making deductions, whether it’s for food, for equipment, for uniforms, for whatever the legitimate business reason is, so long as that deduction doesn’t take them below minimum wage. But the gotcha number two is your behaviors, the way you set up deductions, can’t treat that employee who an exempt employee is, though they are in an hourly employee, because if you do, you may be blowing up your exemption status and all of a sudden you’re on the hook for overtime.

SHENKER:

E exactly. Exactly. And so, look, the only grace here is that for exempt employees that, you know, there’s a safe harbor provision. But again, that basically means that you know, you’re gonna have a safe harbor policy in your handbook, and you’re going to, you know, if, if there were improper deductions, you’re going to immediately reimburse them. You’re gonna, you know, have a complaint procedure and, you know, basically comply with the law going forward. But, you know, don’t count on that good faith, you know, getting you out of trouble. It’s there, it’s a defense. And so that means, you know, if an employer, if you’re hearing this today and you’re saying, I’m making mistake, then you know, by all means, you know, well, if, if you’re making mistakes, maybe, you know, speak to someone, legal counsel, someone at a, at ashore to, to discuss that. But yeah, addressing it quickly is, is the best case scenario if you have made mistakes.

VANNOY:

Got it. Okay. So let’s move on to the other, the other law here, the CCPA a what the heck does that four four letter, four letter acronym stand for

SHENKER:

<Laugh> <laugh>, right? No, not quite a four letter word here, but yeah, yeah, yeah. The Consumer Credit Protection Act you know, addresses how employers handle wage garnishments. So right, what’s a, what’s a wage garnishment? These are, you know, court orders for an employer to withhold money from an employee’s paycheck for a number of reasons. Most often the reasons are for debt owed on child support or, you know, student loan or other loan payments. And basically through this wage garnishment you know, it’s gonna, it’s a state or local document, so it’ll take different forms, but it, it typically looks like a very official court document. And through that, the employer then becomes responsible for, you know, deducting certain amounts from the employee’s wages and transmitting them them to the creditor. And so, you know, this federal law sets forth, you know, certain things that an employer, you know, must comply with.

 So, you know, one of the first things the CCPA addresses is the garnishment amount. You know, so typically if you get one of these, you know, gar wage garnishments, you’ll see whether, you know, the state car counterpart might be different, but, you know, it typically will specify, you know, the amount that needs to be taken out. And, you know, typically it’s under the CC P A, it sets the floor at, you know, it can only be 25% of the employee’s disposable earnings. Basically, that’s 25% of their after tax, you know, paycheck you know, can, can be garnished or they can only have wages that exceed I believe it’s 30 times the federal minimum wage, only those that exceed, you know, 30 times that can be garnished. So obviously what the law is doing is making sure that, you know, employees are still making a living while, you know, paying off the, you know, the debt that they they owe.

 Now, you know, for child support and alimony payments, you know, the caps are a bit higher. You know, there’s, you know, clear reasons. I think why, why that would be the case. Sure. and I mean, look, the, the caveat being, you know, if, if you ever receive a wage garnishment and the employee comes to you and says, Hey, I want you to withhold even more than the garnishment and pay that you know, right now that’s a, that’s okay. I mean, obviously get that in writing, but employees can opt to, you know, pay more, you know, per week than is required.

VANNOY:

I think you mentioned something Brian abouts a that, so like a deduction, say for uniform, it has to be agreed upon by the employee, but that’s not necessarily the case for garnishments, right? I mean, you can’t have someone’s that lost a, a civil case. The judge says, deduct this from their check, and the employee gets to opt out, right?

SHENKER:

Right. So this, this is one where you’re going to provide the employee notice, but it’s not up to them. You know, clearly, I mean, to some extent you could say this is for their benefit because the company is deducting and transmitting payments that are reducing their debt. But you, you can imagine, you know, employees will not necessarily be so happy that, you know, there’s a, a wage garnishment, you know deducting part of their wages. So yes, certainly you cannot listen to the employee, you know, the, the obligation here comes from the court, right? This is a court issue document. So remember that, you know, that, you know, you know, trumps anything that the employee is gonna tell you about it. And basically, you know, the, the employer, you’re bound to comply with the wage garnishment until you get a notice from the court telling you otherwise.

 So, you know, the way this starts, you get the, the wage garnishment, and you know, at the time, o once you receive it, you should let the employee know right away that this is what you received, and that the AC company is going to, you know, immediately begin garnishing wages. You know you know, there might be waiting, you know, for instance, New York I think has a 10 day waiting period before wages can be garnished. So check with local law, but certainly it’s something that you know, the employee should be notified of. And then, like I said, the employer keeps garnishing wages until it’s told not to.

VANNOY:

Brian, this is not

SHENKER:

Under federal law.

VANNOY:

This is not complex, but it’s yet another thing that employers have to do, right? You get these, you have to go set up the deduction in the payroll system. It’s not that like, it’s hard, but it is a task I can see where some employers may want to like, charge an administrative fee. Are are things like that legal

SHENKER:

Mike? Yeah, we, we must be getting to know each other. Cause you just asked me the question, which was a thing I was about to say. Oh, good. So, so, yeah. So, you know, federal law does, does not address that. It doesn’t, you know, it leaves it up to the states. So, you know, there are some states that allow employers to charge the employee an administrative fee for withholding you know, child support or other, you know, garnish wages. You know, the states will typically, if they allow this, they’ll, they’ll have a limit of, you know, the amount of administrative fee that can be charged. And to be clear, you know, that if, if your state permits it, the deduction, you know, that administrative fee is gonna come out of the rest of the employee’s wages. It’s not coming out of the actual right. You know, debt that’s being garnished.

VANNOY:

And just so everyone understand

SHENKER:

Why, and just that, you know,

VANNOY:

This isn’t necessarily some you know, mean employer try to run a company store and, and ex extract every penny outta their employees. There, there are real costs. It’s not just the setting up of that deduction. Yeah. you have to probably go through some accounts payable process you’re gonna have to set up. So if you have mul, if you have multiple employees in a couple, two, three different states, you’re gonna have to set those states, right? Though, probably those treasury departments or child services or whatever the, whatever those accounts are, you’re gonna have to cut checks to. Some might take electronics, some might require a paper check. You’re gonna have to minimum the cost of popping a check in the mail, let alone how many hours or minutes these tasks take from a finance department or a payroll department. So, I, I don’t want to diminish, I’m not, and I’m not advocating charging employees for this. It’s probably 180 degrees from the, from the kind of the culture conversations I think we’d like to have around building a, a, a, a productive workforce. But eyes wide open, there are real costs for employers setting up these, and not just setting up, but setting up and paying these deductions on behalf of that employee.

SHENKER:

Yeah, no, you’re exactly right. And, and I think that’s one of the reasons why the, the anti-retaliation provision under federal law you know, only prohibits adverse action against an employee if they have a single wage garnishment. So you can imagine, you know, if you have an employee that has two or three wage garnishments, you know, this is becoming a problem for the employer to administratively deal with. While, you know, I’m not, you know, recommending, you know, terminate the employee because of that, under the federal law, you could, if they have multiple wage garnishments without, you know, without violating you know, the ccpa you know, again, you know, the, the better remedy might be if you’re in a state that allows the administrative cost to be passed on to do that. But again, you know, this is something that is one of those, you know, costs of, of doing business. And this comes up from time to time. You’ll receive one of these and typically, you know, you wanna seek guidance on how to comply so that you know, you’re, as the employer, you’re not at risk of being penalized for, you know, violating the the wage garnishment.

VANNOY:

Hey, Brian, let, looking at the clock here, let, let’s, let’s kinda shift to just kind of a rapid fire if we can. There’s, like, there’s a ton of use cases that I think we probably would be helpful if we brought clarity for employers. So I’m just gonna, I’m just gonna rattle a bunch off. Sure. I got written down. So what about retail businesses? There’s a, there’s a, a shortage in the register. Somebody’s till is off. Can you deduct that?

SHENKER:

Correct? Yeah. So you can imagine happens all the time. But, you know, most states require the employer to bear the cost of those losses that, you know, come from the cash shortages or, you know, damages or damage or stolen you know, merchandise. You know, again, under federal law, not necessarily prohibited as long as the deduction doesn’t bring them under the minimum wage, but most states prohibit it. You know, there are a small number like, you know, North Carolina and Missouri that, you know, that may permit it. You know, as long as it doesn’t bring them below the minimum a wage. But by and large you know, this is something where, I mean, look, unless the employee has, you know, in connection with the shortage, you know, been convicted of a crime, right? So it’s thousands of dollars, you called the police, they’re convicted of theft, all right?

You know, that, that type of deduction then might be permissible, but, you know, generally generally not, you know, I can give you, you know, California for example, you know, not no deductions for this type of issue unless the employee acted willfully in a grossly negligent manner. Got it. So, you know, then we’re getting towards, you know, it’s not just a shortage, they’d likely stole it, right? Right. right. You know, in Connecticut, no deduction unless the employees signed a certain form approved by the the state D o l and, you know, Maryland, you know, requires the employee’s written consent. That may be very hard to get in those situations, right? So general, so, so the

VANNOY:

Punchline, I think for this one, state by state, you gotta know your local regs. We obviously can help with that. But at the, at a federal level, you know, somebody’s till is off by $3 and 17 cents because there’s a math error or something happened, you, you really can’t deduct it, right?

SHENKER:

Right. Just a cost of business.

VANNOY:

Next one. Let’s take this one. How about just a simple payroll mistake. We accidentally overpaid you last pay period, so I’m gonna take it outta your check to, to true things up this pay period,

SHENKER:

Right? So, federal law doesn’t really address this. Again, we’re looking to the states, but most states generally allow for deductions for overpayments. However, a lot of states have, you know, certain requirements that need to be satisfied. You know, whether or not your state requires it. You know, my, my advice would be to get it in writing, right? You want a written authorization that you can, you know, deduct the amount of the overpayment you know, going forward. And, you know, typically what we’re gonna document is, you know, the date the overpayment happens, the total amount and then the deductions, you know, the amount of deduction going forward and for what time period. And typically, you wanna have a procedure, you know, for the employee to dispute any deduction there. So th that’s what we’re looking for, you know, to get, you know, the employee to authorize, you know, future deductions. And like we said, most states allow this, there’re just going to be requirements. Like in New York, there’s a, a form of a written agreement that needs to be entered into in Illinois, employers can do it but only if it’s done in the first paycheck following the overpayment. So generally, yes, but there are some restrictions on how an employer can do it,

VANNOY:

And just the, the soft side of hr just communicate with the employees, the, the best you can. Some employees, they live paycheck to paycheck, right? No matter how much we pay them for whatever their life circumstances are, no judgment, right? And they get overpaid one period, period, that money could be gone. And for like legitimate bills that we’re stacking up and shorting the next pay, pay period might hurt them in ways that, that, that you might not even think of. So just c communicate, obviously follow local and state law here. Next one. How about when an employee owes you a debt?

SHENKER:

Sure, sure. So, <laugh>, my, my, my first rule here that I, I basically tell every employer is you’re an employer, Don, don’t act as a bank typically, you know, I, I, I don’t like when employers get in the habit of, you know, advancing money or making loans to employees. But you can under, you know under federal and state law, you know, it’s, it’s, it can be permissible. So, you know, what, what are, so under federal law, there’s a d o l opinion letter that says, this might be one of those deductions for a loan for, you know, a a company loan to an employee that it’s permissible to go under the minimum wage. Again, there’s a opinion letter on that. It’s a little iffy, but again, we’re also looking to state law. So most states, like I said, will allow, you know, employers to take deductions to repay a loan or advance.

 Again, you know, how treats states treated is a little different. New York like our previous issue requires a written agreement that addresses, you know, the timing, frequency and duration of the deductions. You know, Illinois, you know that they have a law that allows it, but caps the the amount that can be deducted. You know, and again, what I often see as a problem here is, you know, what, what do you do if you, you make this loan and then the employee quits, or you wanna fire them, and then they’re no longer your employee and you know, unless you have a, you know, you wanna valid enforceable agreement because depending on the amount, you may really have to go to, you know, small claims court or, you know a higher level court to recover this. And so that’s often not where employers wanna be.

So again, depending on state law, you can work that into the agreement, what will happen you know, in terms of the last paycheck. But again, you know, my, my general advice on this is don’t become a bank to your employees. And especially because, you know, there are other issues, right? Think of discrimination issues. If you’re only offering some employees at advances and not others, and maybe, you know, you’ve offered it to, you know, someone of a male but not a female or someone of a certain race and not of others, you know, you’re going to have to apply this loan or advanced payment policy consistently. So that’s, that’s another problem that can arise in these situations.

VANNOY:

Got it. How about pre-employment? So maybe maybe it’s a drug test. Maybe they have to pass a math test. Maybe they have to pass some type of certification to prove that they’re, they actually have the skills to perform the job. Can you, can you, can you charge back for the cost of administering those tests or exams?

SHENKER:

Right. So these are, again, typically handled under state law, but what most states consider is that these type of examinations are for the benefit or the convenience of the employer. And therefore, you know, employers typically cannot require the employees to, to pay for these types of examinations. You know, including background checks. For instance, in California they, you know, California prohibits employers from requiring, you know, any applicant to pay a fee that would cover a background check. In Washington dc there’s a statute that requires the employer to pay the criminal background check. And, but, you know, employers are not precluded from seeking voluntary reimbursement from the applicant. You know, we, we won’t, we won’t go down that rabbit hole. Yeah, yeah. But you know, then there are other states such as, you know, Iowa, Minnesota that strictly require the employer, you know, to pay for criminal background checks. So yeah, typically these sets of pre-employment exams or the checks are going to be the responsibility of the employer. Again, it’s for their benefit, not

VANNOY:

Necessarily the, I know the answer to this next one, but we, this is too important not to ask it. Employer portion of taxes.

SHENKER:

Yeah. So these, you’re talking about the, the payroll portion payroll employer taxes. Yeah, those, those have to be paid by the employer. I think we’re getting into a lot <laugh>, a lot of serious violations you know, tax consequences and, and yeah, you know, wage and hour as well, if you’re trying to get employees to pay for what should be the company

VANNOY:

Tax. We have just expanded beyond ccc, CPA and FFLs A, we got the IRS and a whole bunch of other folks involved. If you’re gonna try to get your employees to pay the employer portion of payroll taxes. Yeah, that’s, that’s a, don’t do it.

SHENKER:

That’s right.

VANNOY:

We talked about uniforms but it was maybe context of how not to back out and so much that you would, that you dip below the minimum wage threshold for flsa. What guide people listening today to how they should be thinking about what’s the proper way to set up deductions for uniforms?

SHENKER:

Yeah. so, you know, I’m, I’m a broken record here, but yeah, it, it’s going to, you know, uniforms are really going to be dictated by state law, and I, I use, you know, New York and as, as an example you know, before, and yeah, I, I mean, look, you know, these are things where I mean, if, if you’re going outside of requiring employees to, you know, wear, you know, basic, you know, street clothes then it’s, it’s gonna be considered a uniform. And, you know, we have to consider, you know, min, minimally the minimum wage and not bringing employees, you know, under that. And then, you know, again, you know, it’s very important to not just think that providing a uniform is, is the end of it. There may be, you know, situations where, like I mentioned under New York law that, you know, the laundering of uniforms is addressed by state law and if it is, you need to make sure you comply with that because, you know, here in New York, it’s a tricky area.

And there I’ve seen numerous class actions where, you know, an employer gave, you know, gave free uniforms to employees, so they, they didn’t, they didn’t have an issue there, right? They, they provided uniforms free of charge, so no deductions, but then the company, you know, does not launder the uniforms or does not provide a sufficient laundering service. And in those cases, it’s a class action. It’s applying to everyone who had this uniform, and they are going to say they were entitled to a uniform allowance. You know, in New York state, you know, employers typically have to pay up to I believe it, it might be even close to $10 or more per week depending on the hours that an employee works in you know, uniform maintenance pay. So there are other states that require that. So, you know again, look, look to your law again. We wanna make sure, you know, we’re, we’re not having issues with the minimum wage. And also, you know, don’t forget the laundering portion of of, you know, having a uniform.

VANNOY:

So we’ve, we’ve covered tools and equipment. I think that falls into the same buckets as uniforms. Anything else you’d want to give guidance on child support?

SHENKER:

Yeah, I mean, I, I think we really hit on that. Again, you’re gonna be subject to, you know, the wage garnishment, pay attention to that, don’t ignore it. You know, it, it, you know, sometimes they’re served by a sheriff or it might just be mailed. But, you know, that’s something where, you know, take it seriously. Don’t wait for multiple notices to come. You know, it’s something that has been resolved in the courts and now you know, you’re being not just asked, you’re being ordered to, to do something. So I understand

VANNOY:

It’s illegal, illegal. Give, give some guidance here for, for validating. We, I, I, I, I know a business owner literally this is about a year, year and a half ago, someone walked in the door, handed a piece of paper, and it turned out to be a server, right? It wasn’t a sheriff, it wasn’t some official piece of mail that looked like it came from, you know, secretary of State. It was a server process server, and handed it to a front desk clerk of this business. And the owner thought it was a scam. They, she ignored it, she threw it, she threw the paper away, and there was a legal judgment on one of her employees, great employee, but she ended up not being compliant with the order in setting up the deduction. What, what’s, what’s your advice for employers to, to vet this and know whether it’s real or not?

SHENKER:

Yeah, and look, I’ve had numerous clients, you know, call me and, and, you know, email me, you know, something or say, I, we don’t even know what this is. Tell us what it is. And yep, I, i, I go through with them, and I think oftentimes these wage garnishments, you know, that they consider that an employer is going to receive this and know nothing about it. So what you’ll often see is that, you know, they ha there’s going to be, you know, a website link or a phone number to someone to call, to ask questions or, you know, there’s going to be typically something on that wage garnishment that would provide you additional information. Now, further, you know, there’s often going to be a reference to the case or the case number or the caption of the underlying legal action. And so, you know, maybe a a a lay person may not know how to go find that, but, you know, speak to you, you can seek legal counsel who can take a look at it and, you know, reach out to that court or look up on online and find that, that case.

So yes, you know, these, sometimes they look like a foreign document that we really don’t know if it’s legitimate or not. But typically there will be information in there that can allow you to, to figure out the, the legitimacy or, and if you can’t, then, you know, probably seek legal counsel to do so.

VANNOY:

Yeah. And, and to be clear, if, if you as an employer are, are, are given a court order, it, the, you’re on the hook. This isn’t whether your employee agrees to this deduction or not. You are the, you are the responsible party and you could be illegal hot water if you don’t comply with this order, right?

SHENKER:

No, absolutely. If, if, you know, it’s been established that the company’s been served with the the garnishment and has ignored it there can be repercussions, penalties you know, often depending on, on, on state law. But yeah, there, there can certainly be penalties cuz you know, you can imagine the, you know, the situation where, you know, maybe there is ill intent that an employer doesn’t garnish wages because they like the employee and, you know, so, you know, no one’s going to just assume that you as the employer, you know, threw it out or didn’t know what you were doing. You know, it’s a legal document, you’re going to get served in a proper way, whether, like you said, through a process server or otherwise. And you know, it should be taken seriously. Certainly there are, there, there are financial repercussions if you

VANNOY:

Don’t, couple more use case I want, I wanna walk through. So breakage, I’m, I’m working on a, on a, on a piece of machinery and maybe it’s, maybe it was wear and tear in my opinion. Maybe the business owner thinks it was improper use of the equipment. Something breaks can, can, if, if the machine breaks while I’m using it can the employer deduct my wages to pay for that?

SHENKER:

No, Ty typically not, you know, this is going to go, you know, probably in, you know, similar to when we talked about register shortages, that, you know, this is something that is the employer’s responsibility. It’s a cost of business. You know, unless, you know, the, with the caveat that, you know, look, if, if you have evidence of an employee intentionally, right, you know, just, you know, damaging company property and you can establish that, you know, then you might actually have a, a legal issue there on your hands and, and can get, you know, compensation. But yeah, typically within, you know, the framework of their employment, you know, acting, you know prudently. Yeah, well, you’re not gonna be able to deduct for, for breakage and yeah, that, that’s an area where I’ve, I’ve seen a lot of employers get, you know, in trouble whether, you know, sometimes it’s even just the threat of that that leads employees to, you know, complain and, and you know, take legal action, right? You know, even before there’s an actual deduction for that. So yeah, be very careful with breakage. Typically, we’re, we’re not allowed to do

VANNOY:

That. You got a construction worker, they’re on top of the roof, they say, screw this job, I hate it, I hate you. They throw their pneumatic nailer off the roof, criminal action, probably safe to deduct, but that, that nailer who’s on the construction on top and they accidentally dropped their pneumatic nailer two stories and it breaks cost of doing business, you can’t make the deduction, right?

SHENKER:

Correct. Yeah.

VANNOY:

Okay. couple more I want to hit.

SHENKER:

Sure.

VANNOY:

Con contribution to a charity, right? So, hey, you know, the, instead of passing the hat around the cafeteria it’s, Hey, would you like me to just set this up as a, as a payroll deduction for you? I can imagine all kinds of weird areas. This could go around perceived coercion and hey, is it, what if it takes them below minimum wage, but they were the ones that they volunteered it, they wanted to make this deduction. Give, give us some guidance in the area of, of charitable contributions.

SHENKER:

Yeah, so typically these you know an employer is free to set up the ability to make charitable contributions through payroll deductions. It’s generally okay you know, unlike some other you know, for instance, you know there’s a provision that allows, you know, some payment of other, you know, things pre-tax. This is gonna be a post a post-tax payment. But yeah, you know, a company can set this up. They can, you know what, I typically advise that if a company is going to do this that, you know, they’ll work with one or more charities and, you know, they’ll have something in writing more or less a brochure that can be provided to employees that can spell out, you know, the rules for, you know, how you know, the, these are often called, right, workplace giving programs, you know, spelling out the rules of how to do that, how to enroll, how to make the deductions.

 And, and look, these are generally, you know, right, there’s always that concern that, you know, there’s going to be right coercion or, you know, this isn’t truly voluntary. We need to be very careful about that to make sure it’s clearly a voluntary thing to do. But other than that, you know, this goes hand in hand with, you know, setting a, a culture and you know, so some companies feel that, you know, this helps promote you know, a positive inclusive culture by, you know, allowing employees to to conveniently you know, make deductions that, that can go to charities. So, yeah. Absolutely.

VANNOY:

Yeah. Brian, I got, I got one more and I think, we’ll, we’ll, we’ll call it, there’s a bunch more use cases, but I think we hit on all the big ones here. The last one is maybe employee purchases. So maybe I’m maybe I’m a person I’m, I’m bringing in a second income maybe to, to the house. And I’m working at this retail facility. I’m working at this, maybe it’s a hair salon. And most of my income I spend on buying products because I get ’em at a company discount or something. So my, my net paycheck might go below minimum wage, but that’s okay with me. I’m actually working there for the discount, or I’m thinking a retiree working for free golf or something at that. Right. Speak to

SHENKER:

Right

VANNOY:

Services, services received, gym memberships, maybe it’s actual products received from quote unquote the company store that does that, that, that term obviously has some negative connotation to it. But how, what’s your, what’s your guidance for employers when it comes to payroll deductions for products and

SHENKER:

Case, you know, purchase by the employee? Yeah, so, you know, the deduction here is going to be, you know, for the benefit of the employee. That’s clear. But right at the same time, you, you can see how we could easily get into, you know, minimum wage issues. So, you know, my, my typical advice when it comes to, you know, the employee purchasing things, whether it’s like you said, product or, you know, maybe even uniforms, right? They’re provided three free uniforms, but you can purchase more if you like. You know, things like that. I like to have that done as a separate transaction where, you know, the employee pays the employer you know, you’re, you can provide the discount that way but that, you know, when you do it through a deduction, right? There, there are a number of things that, that you’re risking.

I mean, number one is, you know, is this allowable under particular the particular state law? Cause I think under federal law, probably allowable, provided the minimum wage you know, we don’t violate minimum wage issue. But, you know, there could be, you know, state restrictions on this. But, you know, regardless, you know, a lot of times it’s gonna result in a minimum wage issue because of the cost of these things that are being purchased. And so, you know, I think just as a general rule, if the employee is purchasing you know, their own product, you know that it shouldn’t be done through deductions. It should be a separate transaction. You know, apart from that just to make it cleaner and avoid any potential issues,

VANNOY:

I think that’s really good advice. And, and just maybe the thing I would coach folks on that employee who is, who is a good, loyal, friendly employee today, you got a great relationship today. They’re, they’re, they’re buying your company’s products or services as a payroll deduction with no issue until it’s an issue, right? And so things might just because things are going smoothly, doing this today who, who knows what life events in your life in the, in, in, in the survival of your business life events for that employee, that things can turn, things could change, and that person could feel very differently. And all of a sudden you have a, have a tenuous relationship a year or three years down the road, and all of a sudden they’re like, wait a minute. I haven’t been receiving minimum wage for the last three years. And what was a happy employee three years later ends in a, in a, in a, in, in a not so good way, and all of a sudden, boom, you’re exposed retroactively to, to a wage and hour audit. So,

SHENKER:

Right. That’s keeping Mike and I, yeah, and, and I think that wraps it up perfectly. I think at the beginning we talked about, you know, doing deductions out of, you know, some, you know, ill intent sometimes. And, and here, you know, as you just pointed out, even if an employee is saying, yes, do this deduction, I consent, you need to be aware that sometimes, you know, the law requires more than that employee’s authorization, right? It might be just a prohibited deduction or, you know, there are other hoops you have to jump through. So, yeah, I think that’s a great point. Don’t, don’t assume that because an employee today is saying, yeah, make the deduction that number one, they’re gonna be okay with that, you know, three months from now. And number two, that the federal or state law actually permits it.

VANNOY:

I think it’s a perfect place to end, Brian. If, if there’s anything we can do to help assure provides fractional, outsourced human resources services to clients pennies on the dollar for what you could ever hire an in-house HR staff to help build the employee handbooks the training, the guidance to keep you in line and, and keep you compliant, to keep you outta hot water in the first place. But when troubles do arise that’s where Brian’s expertise comes in as well. There’ll be a survey that pops up at the end of this event. If you, if if you’d like us to reach out and, and see if there’s something we can assist you with Brian, I learned something new every time I talk to you. I really appreciate your expertise on this topic, and I’m sure our audience does too. So thanks for coming today.