Can I take it out of their paychecks? A refresher on wage deductions

published in Oklahoma Employment Law Letter | April 1, 2012

We frequently get questions about whether and when an employer can deduct wages from an employee’s paycheck for things like uniforms, cash shortages, and training. Oklahoma law is very specific about wage deductions, so we thought a refresher on the topic would be helpful.

‘Hey, you owe me money!’

For purposes of discussion, here are two common scenarios in which employers often wonder whether they can deduct from an employee’s check.

Scenario 1: You run a retail store and require employees to purchase and wear polo-type shirts with the company logo. Can you deduct the cost of an employee’s uniforms from his paycheck? Scenario 2: Your industry is very competitive, and certain vendors require “certifications” to sell their products. The problem is that getting the certifications is costly. Further, once an employee gets certified, he can go down the street and work for a competitor using a certification you paid for. Can you require an employee to reimburse you for the cost of certification if he quits within a year of getting certified? If so, can you deduct the amount from his final paycheck?

Both federal and state law affect the minimum wages you must pay employees. The federal law is the Fair Labor Standards Act (FLSA). Oklahoma has its own minimum wage counterpart to the FLSA. In addition, the Oklahoma Department of Labor has issued regulations concerning wages paid to employees in the state. Before you reduce an employee’s wages, you need to look at each of these laws and make sure your plan doesn’t run afoul of what may be allowed.

Oklahoma law allows you to enter into a wage deduction agreement with an employee for certain things as long as the agreement meets certain standards. First, it must be in writing, and second, it must be signed by the employee before any deductions are made.

Even so, you can’t get an employee to sign an agreement for just any purpose — the law is very specific about what sorts of items may be the subject of wage deduction agreements. Under Oklahoma regulations, you may enter into a wage reduction agreement with an employee for the purpose of allowing him to:

  1. repay a loan or advance that the employer made during the course of and within the scope of employment or to allow for recovery of payroll overpayment;
  2. compensate the employer for the value of merchandise or uniforms purchased from the employer by the employee;
  3. provide payment for medical, accident, disability, or retirement benefits or insurance premiums, not including workers’ compensation or unemployment compensation;
  4. provide for contributions to a deferred compensation plan or other investment plan provided by the employer as a benefit to the employee; and
  5. compensate the employer for breakage or loss of merchandise, inventory shortage, or cash shortage caused by the employee (provided he was the sole party responsible for the cash or items damaged or lost at the time the damage or loss occurred).

As you can see, Scenario 1 is specifically contemplated by Oklahoma regulations. In that case, as long as there is an appropriate agreement in place, the employer could make the deductions for uniforms from the employee’s paycheck.

Oklahoma law also states you can require an employee to pay for certain training or certifications. Generally, you can require an employee to pay for certifications or training that are personal to (or stay with) him. For instance, in Scenario 2, a vendor requires a certification that stays with the employee regardless of his employer. That’s the type of certification you can require an employee to pay for himself.

For that reason, you could enter into an agreement in which the employee agrees to pay back the cost of training if he leaves within a certain period of receiving the training. These types of reimbursement agreements have also been upheld by the U.S. Supreme Court. Thus, the employer in Scenario 2 could withhold the amounts for certification as long as there was a signed agreement in place before it did so.

Beware: The analysis doesn’t stop there!

Remember earlier in this article, when I mentioned the minimum wage laws? This is when they become crucial. The minimum wage laws generally state that a covered employee cannot be paid less than minimum wage for hours worked in a given pay period. Of course, certain deductions (e.g., taxes and social security) must be made, but certain other deductions cannot reduce an employee’s pay below the minimum wage.

Thus, in Scenario 1, if the employee made $9 per hour, you could reduce his paycheck by the cost of the uniform, but you’d have to spread the cost out over several paychecks. That’s because you can’t reduce his paycheck to the point that he’s not receiving at least the minimum wage ($7.25/hour) for the time worked.

The answer may be different in Scenario 2 depending on whether the employee is exempt from the minimum wage requirements of the FLSA and Oklahoma law. If he’s exempt under the FLSA, he’ll also be exempt under Oklahoma law. (Beware: That won’t be the case in every state.) So, for instance, if the employee in Scenario 2 is an outside salesperson who is exempt under the FLSA, you could deduct the cost of the certification from his final paycheck. (Notice I didn’t say you could deduct the wages you paid him while he was getting the certification; that’s the subject of another article.)

Bottom line

The bottom line is that Oklahoma law allows you to enter into wage deduction or reimbursement agreements with your employees for certain things, but the administration of those deductions will vary depending on various laws — most important, minimum wage laws. If you are faced with deductions that may decrease an employee’s paycheck below the minimum wage for a particular pay period, you should contact an attorney to discuss the issue before making the deduction.