Deductions from Wages
SPECIFIC DEDUCTION AUTHORIZATION:
Pursuant to N.C.G.S. §95-25.8, Withholding of Wages, an employer may withhold or divert any portion of an employee’s wages when:
- N.C.G.S. §95-25.8(a)(1) - The employer is required to do so by state or federal law. (Example: income taxes, FICA and court ordered garnishments.)
- N.C.G.S. §95-25.8(a)(2) - The amount of a proposed deduction is known and agreed upon in advance and the written authorization is: (a) signed on or before the pay day in which the deduction will be made, (b) includes the reason for the deduction, and (c) states the actual dollar amount or percentage of wages that are to be withheld.
Example: John Smith is hired by the Any Company on Nov. 1, 2005. John is issued a cell phone valued at $150 on his first day of employment, and he signs/dates a payroll deduction authorization that states:
I, John Smith, have received a cell phone valued at $150 to use in conjunction with my work assignments with Any Company. I understand that if I fail to return the phone upon my separation of employment, $150 will be deducted from my final paycheck.
This deduction authorization is valid, regardless of if John Smith leaves the company after one month or five years of employment. The authorization meets all of the requirements set out in the current deduction provisions. It is signed in advance of the deduction being made, it includes the reason for the deduction, and it includes a specific dollar amount. No additional notice to the employee is necessary prior to the deduction being made, nor can the employee withdraw the authorization since the deduction is for the benefit of the employer.
Note: An employee may withdraw their written authorization for a specific deduction if the deduction is for the benefit of the employee. Deductions for the benefit of the employee include, but are not limited to, savings plans, parking fees, charitable contributions and uniforms that are NOT required by the employer. A written authorization for specific deductions that are for the benefit of the employer may NOT be withdrawn by the employee. Deductions for the benefit of the employer include, but are not limited to, use of the employer’s equipment, cash register shortages, inventory shortages and uniforms that are required by the employer.
- To withhold or divert a portion of a current employee’s wages for cash shortages, inventory shortages or loss or damage to an employer’s property, the employer may make deductions from wages upon providing seven days notice in addition to complying with the other deduction provisions, including the written authorization requirements and the deduction limitations of the minimum wage and/or time and one-half overtime pay, as these items are for the benefit of the employer. If the employee’s employment is discontinued for any reason, the deduction may be made without regard to the seven-day notice.
Example: Sally Jones begins work in a retail store as a cashier on Nov. 1, 2005. On her first day of employment, Sally is told that if her cash register is “short,” and she is subject to deductions from her pay to recover the shortages. Sally signs/dates a written authorization stating:
I, Sally Jones, understand that if my cash register drawer is “short” for any reason, payroll deduction to offset the shortage will be made from my paycheck for the pay period following the date the shortage is discovered.
On Dec. 1, 2005, Sally's cash register is short $50. On Dec. 2, 2005, the retail company provides Sally with a written notice stating, “Per your signed authorization dated Nov. 1, 2005, a deduction of $50 will be made from your paycheck dated Dec. 15, 2005, because of your cash drawer shortage on Dec. 1, 2005. You have the right to withdraw your authorization in writing prior to Dec. 15, 2005.” The written notice is provided at least seven days in advance and no additional authorization is required from Sally.
BLANKET DEDUCTION AUTHORIZATION:
- N.C.G.S. §95-25.8(a)(3) - If the amount of a proposed deduction is NOT known in advance, the employer must have written authorization from the employee that is signed before the payday from which the deduction is to be made and that states the reason for the deduction. Prior to actually making a deduction, the employer is required to provide the employee with a WRITTEN NOTICE of the actual amount to be withheld and the employee must be informed in writing of his right to withdraw the authorization. The employee must inform the employer in WRITING if they want to withdraw their written authorization.
Example: Any Company issues John Smith a laptop computer on his first day of employment. The company wants to ensure that John returns the computer upon his separation, but the “value” of the computer is difficult to predict, based on depreciation, technology changes, etc. Therefore the amount of the proposed deduction is unknown and the authorization would state:
I, John Smith, have received a laptop computer from Any Company for use in the course of my employment. I understand that if I fail to return the laptop upon separation from the company, Any Company may deduct the value of the laptop from my final paycheck.
Prior to making a deduction; however, Any Company must provide John Smith with a WRITTEN NOTICE stating, “Per your signed authorization dated Nov. 1, 2005, a deduction of $450 will be made from your final paycheck if you fail to return the company owned laptop computer. You have the right to withdraw your authorization. Request for such withdrawal must be made in writing within five days of receipt of this notice.” ( *see “Note of Important Issues” number 1 below.) The written notice given to John does not require his signature. John may not verbally withdraw his authorization; it must be done in writing.
NOTE ON IMPORTANT ISSUES:
Deductions for the employer’s benefit are limited as follows: (a) in non-overtime workweeks, wages may be reduced to the minimum wage level but cannot go below the minimum wage (currently $7.25 an hour), and (b) during overtime workweeks, wages may be reduced to the minimum wage level for the first 40 hours; however, NO deductions can be made from the full time and one-half overtime wages (based on the employee’s regular rate of pay). Deductions for the employee’s benefit are not limited.
Advances of wages to an employee or to a third party at the employee’s request and the principle amount of loans made by an employer to an employee are considered a “prepayment” of wages and the recoupment of these amounts is not a deduction from wages; therefore, a written authorization for the recoupment is NOT required and there is no limit to the amount of the pay-back by the employee. However, if an employer charges an employee interest or a bookkeeping fee, then a signed authorization must be obtained from the employee before a deduction for the interest or fee may be made, and the minimum wage and/or time and one-half overtime pay limitations apply. A bona fide employer error that results in an overpayment of wages to an employee is also considered a “pre-payment” of wages and may be recouped from subsequent wages without regard to the deduction requirements. In other words, employer advances in pay, the principle amount of an employer loan and bona fide employer overpayment errors do NOT require a written authorization from an employee in order for the employer to take these “pre-payment” amounts back and there is NO minimum wage and/or time and one-half overtime pay limitation. Note: The federal wage and hour law does not recognize the advancement of vacation leave as wages; therefore, federal law regards the recoupment of advanced unearned vacation leave as a deduction from wages for the employer’s benefit.
An employee must receive WRITTEN notice at one pay period in advance before a wage or wage benefit decrease takes effect. The old regulations did not define “prior” notice. The prior notice requirement also applies to changes in commission/bonus-calculation formulas and production standards that result in the reduction of an employee’s pay. As in the past, pay increases may be provided retroactively.
Although the N.C. Wage and Hour Act permits the deductions discussed above with proper authorization and notification, an employer is prohibited from making any deductions that are for the employer’s benefit from the “guaranteed salary” part of an EXEMPT employee’s wages under both state and federal wage and hour laws for executive (supervisory), administrative or professional employees.
Revised October 2017
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