Deductions from Paycheck

I have several employee's who have veterinary services provided to them by our facility.  Most of them do not have the money upfront and would like to have an agreed upon amount deducted from their paycheck every two weeks.

They would sign a contract for employee payment, allowing us to make the scheduled deductions.  The contract would also state that if resignation/termination occurs and there is still a remaining balance, the balance would be deducted from the final paycheck.

I am asking if anyone knows if this would be compliant from an HR/Payroll standpoint, considering that the employee will sign and agree upon the deductions rather than pay by personal check/credit card/cash every two weeks.

Thank you in advance for your input.


  • 1 Comment sorted by Votes Date Added
  • Some state wage laws allow for it and others do not, so you would need to check your specific state wage law. Look for "voluntary wage deductions" along with your state's name in Google.

    You definitely would want a contract and some type of employee authorization. You also need to check to see if the employee has the right to stop payroll payments at any time even if there is still a a balance owed. And often you would be better protected to make it a true loan with conditions even if they terminate employment. Because what happens if there is not enough in the last paycheck to cover the balance? 

    Note that this WOULD be taxable and should be subtracted out after wages are taxed (out of net NOT gross).

    This is what the state of Texas cautions "...(this) would include any instance in which the employer advances money to the employee to pay for something on the employee's behalf for which the employee would normally be personally responsible....Special precaution for loans and wage advances: employers should never loan money or advance wages to an employee without treating the occasion like a bank would. That means securing the employee's written agreement on a separate loan or wage advance document listing all the particulars of the transaction, such as amount loaned or advanced, date of transaction, full name and social security number of the employee, the amount and frequency of repayment installments, and what happens to an unpaid balance remaining when the employee leaves the company. Finally, find out what legal formalities are necessary in Texas and your other states of operation to make a valid promissory note and include such language in the loan or wage advance agreement, so that if the employee fails to satisfy the repayment obligations, the company will have the option of taking the ex-employee to civil court."

    One other thing to caution is that same wage laws have specific language on "not to the employer's benefit". One could argue that providing the services for payment (and for profit) is to the employer's benefit along with the employee's benefit. The employer DOES benefit on the transaction and therefore, it could cause problems with the deduction.

     Personally we don't do loans/wage advances. I've seen too many cases where the hand that feeds gets bit.  Maybe provide an employee discount...but do it upfront rather than behind.  Or handle it how you handle it with non-employee clients.

Sign In or Register to comment.