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Employment law

payroll deductions

State and federal laws dictate what deductions an employer may lawfully take from an employee’s paycheck. For example, there are some deductions that an employer may take even if it reduces the employee’s wages for the pay period to less than the minimum wage—and there are other deductions an employer may not take from an employee’s paycheck if it will reduce the employee’s pay to less than the minimum wage for the pay period.

Deductions that may be taken even if they reduce the employee’s wages to below minimum wage include: (1) federal, state, and local taxes; (2) meals, lodging, and living facilities; (3) transportation provided by the employer—but only if the travel time does not count as time worked and is not necessary to the employer; (4) fuel and merchandise; (5) instructional costs (tuition provided by a college to student employees); and (6) deductions that directly benefit the employee—including health insurance, life insurance, 401k, pension, and retirement plan contributions.

Deductions that may be taken only if they will not reduce the employee’s wages below minimum wage include: (1) shortages or missing cash or property—unless the employee has stolen or misappropriated the cash or property; (2) tools of the trade required for the job that are provided by the employer; (3) personal use of company car (but only if the employer does not benefit from the personal use); and (4) the cost of providing and maintaining employee uniforms if required by law, custom, or the employer—unless the uniform is simply specific street clothes, in which case the employer may not deduct the cost.

Some examples of situations in which an employer may take a payroll deduction only if the deduction does not reduce the employee’s wages below the minimum wage include: (1) an employee working as a cashier who is required to reimburse the employer for a cash drawer shortage; (2) an employer requires tipped employees to pay for customers who walk out without paying their bills or for incorrectly totaled bills; (3) an employer furnishes elaborate uniforms to employees and makes them responsible for having the uniforms cleaned; (4) an employee driving the employer's vehicle causes a wreck, and the employer holds the employee responsible for the repairs, thereby reducing the employee's wages below the minimum wage; (5) a security guard is required to purchase a gun for the job, and the cost causes the security guard to earn less than the minimum wage; and (6) the cost of an employer-required physical examination reduces the employee's wages to below minimum wage (or required overtime pay).

State laws on payroll deductions vary from state to state—including minimum wage laws that may provide for a higher minimum wage than the federal minimum wage. These laws are usually located in a state’s statutes.

In Texas, both state and federal laws regulate the deductions an employer can make from an employee's paycheck. Deductions that can be made even if they reduce the employee's wages below the federal minimum wage include taxes, costs for meals, lodging, transportation not counted as work time, fuel, merchandise, instructional costs, and contributions to benefits like health insurance and retirement plans. However, deductions that cannot bring an employee's wages below the minimum wage include cash shortages (unless theft is involved), tools provided by the employer, personal use of a company car (if the employer doesn't benefit), and the cost of uniforms (unless they are street clothes). Employers must be cautious when deducting for cash drawer shortages, customer walkouts, uniform maintenance, vehicle accidents, tools or equipment required for work, and employer-required medical exams, ensuring these do not reduce wages below the minimum wage. Texas may have specific statutes that provide for a higher minimum wage than the federal minimum wage, and employers must comply with the most stringent standard.

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