Authorized Employee Payroll Deductions

Hans Jasperson has over a decade of experience in public policy research, with an emphasis on workforce development, education, and economic justice. His research has been shared with members of the U.S. Congress, federal agencies, and policymakers in several states.

Daniel Rathburn is an associate editor at The Balance. He has over three years of experience working in print and digital media as a fact-checker and editor. Daniel holds a bachelor's degree in English and political science from Michigan State University.

There are a number of situations in which an employer may have thought about cutting an employee's pay, but there are legal wrinkles when it comes to employee deductions that all employers should understand.

For example, an employer cannot cut the wages of a non-exempt employee to make the employee pay for the amount the owner lost in theft if so doing would reduce the employee's pay below any required minimum wage or overtime pay that is due. In the case of exempt employees, the U.S. Department of Labor has ruled that salary deductions to pay for cash shortages or the cost of lost or damaged equipment "would violate the salary basis requirement."

Key Takeaways

• There are many restrictions to cutting an employee's pay, but it is allowed in some cases.
• Employees may ask for an additional deduction for tax purposes, or to contribute to their union.
• A court may order an employer to garnish an employee's wages for child support or to repay debt.
• An employer may not deduct an employee's pay without consent for lost tools or cash shortages.

When Employers Can Make a Wage Deduction

If the Employee Authorized the Deduction Plan

For example, the employee may agree to contributions to a "flower fund" to pay for flowers for funerals, or for United Way or other charities. The employee must approve of this in writing. Employees must also agree to pay deductions for benefit contributions. An exception to this rule is if an employee makes a deduction for items that are necessary for the business, like uniforms.

For Income Tax Withholding

Every employee must complete Form W-4 at hire specifying the amount of withholding for federal taxes. For all states where the employee works which have income tax, the employee must also complete a withholding form. The withholding form allows the employer to take withholding (a specific form of deduction) from employee pay. The employee gets to specify the amount of the deduction by completing the W-4 Form.

By Contract

In a union contract, for example, employee pay may be deducted for union dues, depending on the contract and state laws. The employee may have an individual employment contract which authorizes certain specific deductions. Employer loans to employees may also be deducted.

By a Court

A court may require you to garnish employee wages for child support, non-payment of debts, or other purposes. The employee does not have to consent to this deduction.

Employee-Requested Deductions

These can be made at any time. An example might be an employer loan to an employee (a loan agreement should be signed), which the employee is paying back with payroll deductions. Other employee-requested deductions, such as to the United Way, U.S. savings bonds, or union dues, should also have a signed agreement in the employee's file.

Note

There must be a written record in the employee's payroll file showing employee agreement to pay deductions and withholding. The only exception is for FICA taxes (Social Security/Medicare). Federal income tax withholding is based on the employee's directions on the W-4 form.

What Deductions Are Not Allowed

Employers may not deduct the following from employee pay, under any circumstances:

• Employment taxes required to be paid by employers, such as federal unemployment tax (FUTA) or state unemployment tax.
• The cost of bonding an employee.
• Service charges or fees for garnishments (although these may be permitted by state law).

Employers are not allowed to require employees to pay for or reimburse the employer for any items considered primarily for the benefit or convenience of the employer. For example, if the employer wants employees to wear uniforms, that something that benefits the employer, not the employees.

Some deductions without the express consent of the employee are restricted or limited, including:

• Lost or damaged tools
• Cash shortages (like a cash drawer)
• Employer-required physical examinations
• Uniforms or cleaning uniforms, when required
• Interest owed on an employer loan to an employee.

Deductions for Exempt Employees

Exempt employees are those who are exempt from overtime (non-exempt employees can be paid overtime). Reductions in the predetermined salary of an exempt employee will ordinarily cause a loss of the exemption. In addition, if the employee's pay falls below at least $684 per week, you may need to pay that person overtime.

Employers are not usually allowed to take unauthorized deductions from the pay of exempt employees. Some deductions for non-exempt employees are limited or restricted:

• Involuntary deductions cannot result in the employee being paid less than the federal or state minimum wage, whichever is higher.
• And deductions cannot be taken in a week when the employee worked overtime.

Payroll Taxes

The only exception to the requirement for specific employee authorization is FICA taxes: Social Security and Medicare taxes. The employee portion can be deducted from employee pay without specific consent since these deductions are required by federal law. This allowance applies to the new additional Medicare tax, which is withheld from higher-income employees once they reach a specific pay level.  

If an Employer Wants To Cut Employee Pay

Employers need to know that employees have the right to contact the state employment department or state labor board if their pay is cut without consent (except as stated above). As an employer, you don't want the state labor department coming into your business in response to employee complaints. They will do a complete audit and may find other employment law violations. They also may decide to contact federal agencies if they find federal violations.

Frequently Asked Questions (FAQs)

Can my boss dock my pay for mistakes?

Generally, no, employers cannot deduct pay from an employee's paycheck unless the employee gives written consent or is instructed by a judge to do so. Your boss has restrictions around docking your pay for missing or damaged tools and cash shortages. Some states such as New York have laws prohibiting employers from docking an employee's pay for any reason other than one given by a judge.

What are the mandatory payroll deductions?

Generally, there are four deductions made from most employee's paychecks in the United States:

• Federal income tax
• Social Security
• Medicare
• State income tax (if applicable)
• Local income tax (if applicable)

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. U.S. Department of Labor. "Fact Sheet #16: Deductions From Wages for Uniforms and Other Facilities Under the Fair Labor Standards Act (FLSA)."
2. U.S. Department of Labor. "FLSA2006-7," Page 1.
3. U.S. Department of Labor. "Field Operations Handbook §30c10."
4. Internal Revenue Service. "About Form W-4, Employee's Withholding Certificate."
5. U.S. Department of Labor. "Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title III (CCPA)."
6. Internal Revenue Service. "Understanding Employment Taxes."
7. Internal Revenue Service. "Depositing and Reporting Employment Taxes."
8. State of California Department of Industrial Relations. "Deductions."
9. ADP. "Employer Reimbursement Guide for Child Support and Garnishment Processing."
10. U.S. Department of Labor. "Fact Sheet #70: Frequently Asked Questions Regarding Furloughs and other Reductions in Pay and Hours Worked Issues."
11. Department of Labor New York. "Deductions from Wages."
12. Consumer Finance Protection Bureau. "Understanding Payroll Deductions."

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