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 Washington State, employers are allowed to make certain deductions from an employee's paycheck, even if these deductions bring the employee's wages below the federal or state minimum wage. These permissible deductions include federal, state, and local taxes; costs for meals, lodging, and certain employer-provided transportation; fuel and merchandise purchases; educational costs for student employees; and contributions to benefits such as health insurance and retirement plans. However, there are other deductions that cannot reduce an employee's wages below the minimum wage. These include cash shortages (unless theft is involved), costs for tools of the trade, personal use of a company car (when the employer derives no benefit), and uniform maintenance costs (unless the uniform is standard street wear). Washington State may have a higher minimum wage than the federal minimum, and employers must comply with the higher state wage. Employers must also adhere to state statutes governing payroll deductions, which can vary from the federal regulations.