Withholding Money from Former Employees' Paychecks

If you run a business, you know that employee turnover is inevitable. In today's ever-changing marketplace, most people don't stay in one job for life anymore. As an employer, you will therefore be tasked with knowing what to do when an employee quits or is fired, particularly if that employee still has office equipment or supplies. Can you withhold money from a former employees' final paycheck to recoup any losses to the business?

Below is a discussion of both federal and state wage laws and what you may be able to withhold from an employees' final paycheck. To learn more, visit FindLaw's Wage and Hour Laws page.

Federal Law: Paycheck Withholdings

Under federal law, specially the Fair Labor Standards Act, an employer is allowed to make paycheck deductions for any unreturned property such as laptops, phones, and other items belonging to the business. The main and only requirement is that these deductions not reduce the employees' pay below the federal minimum wage. An employer may not deduct the cost of items that are primarily for the benefit of the employer if it causes the employees' wages to fall below the minimum wage standard. This includes items such as

  • Uniforms;
  • Cleaning and maintaining the uniform;
  • Tools;
  • Any other items deemed "necessary" by the employer to perform the employee's job functions.

Basically, if the deductions result in the employee making less than minimum wage, that deduction is prohibited by federal law and, as an employer, you can't legally do it.

State Laws

Keep in mind, that even if you follow federal law, you may violate your own state's law if you withhold money from a former employee's final paycheck. A number of states have laws restricting or prohibiting paycheck deductions at all.

For example, let's say you owned a glass art gallery in California. You have an employee who is quite clumsy and has broken five separate vases. You decide to fire him, but also want him to pay for the items he has broken. You want to deduct it from his final paycheck. Can you?

Under California law, employers are only allowed to take deductions from an employee's paychecks if the employer suffered a loss due to the employee's dishonesty, willful misconduct or gross negligence. So, whether or not you can reclaim your losses from your employee's final paycheck really depends on the circumstances that surrounded the accidents. Would breaking the vases be considered gross negligence or willful misconduct? That depends.

If, for example, your employee tripped and broke the five vases while he was skipping through the gallery while blindfolded, then you probably can make a strong argument that he was acting with gross negligence and you would be allowed to take deductions for the losses from his paycheck. However, if your employee is simply clumsy and tripped while trying to be careful, then you will probably have to cover the losses yourself.

The bottom line is to know your state's laws before withholding money from their final paycheck for losses or breakage to the business.

Get Legal Help

The best way to know if you are in compliance with wage laws is to contact an employment law attorney in your state. An experienced attorney will know both federal and state laws and help you decide the best course of action should you need to withhold money from an employee's paycheck.

Next Steps

Contact a qualified business attorney to help you prevent and address human resources problems.

Help Me Find a Do-It-Yourself Solution