Can I deduct from paycheck?

Caroliso · May 2005

We have an employee who is horribly late on most everything. He is all set to term employment, and we have not received receipts against a travel advance he took out months ago to the tune of about $800.

Can I deduct this from the final paycheck?

Actually, I know part of the answer... depends on your state laws. Can anyone point me in the right direction? I spent 30 minutes on Massachusetts Department of Labor webset and found no clue. Maybe i'm looking in the wrong place....

Help?

Thanks,

Carol

LivindonSouth · May 2005

I would not hesitate to deduct the amount from his check, regardless of state law or recommendation to the contrary. Deduct it, let him protest if he will, and deal with it.

marc · May 2005

That is certainly an expedient way to do it, and you may even get away with it.

However, to be bullet proof, you need specific signed employee authorization to deduct anything from his/her check except for required taxes and tax withholdings.

Caroliso · May 2005

You're right Marc, and this is the way we typically handle things. I'm taking steps to make sure we have this in place for the next time.

In the meantime, I searched the Mass. General Laws on the subject and couldn't find any wording on this, but I never assume that means it's not there somewhere. I do wonder what the penalty would be for doing this, and if it's more than the time I'm spending trying to get an answer ....8-|

Carol

pork1 · May 2005

CAROL: Do you have an "accounts receivable" set-up for the advance? If so there may already be signed agreement in the application of the travel advance. Check with accounting to see what words they used in setting up the issuance of a $800.00 travel advance check! If he knows, he owes the money you could cut his normal paycheck and escourt the ee to the bank and have him pay whatever he owes at that moment. I have done this three times and it work well for us.

Good luck!

PORK

Caroliso · May 2005

Pork, I checked the Travel Advance request form and there is nothing on there. I have advised Accounting to immediately add some language, with an initial required, that the person understands that should the advance be outstanding upon employment termination (or they may even want to say within some period of time after the trip completion) that the money will be deducted from their paycheck and reimbursed when receipts are submitted.
In the meantime, I've learned that Accounting informed him by e-mail of the intent to do this if receipts aren't in by the time they need to cut the payroll check, and we agreed they will get his sign-off when he comes to pick up the check. Good luck to them, he's a prickly sort.

Carol

Pixie · May 2005

You should show it as income on his final pay. The regs read that an advance that is not repaid within a resonable amount of time is to be considered wages and reported as such. To avoid paying the employers portion of taxes (FICA) you can always issue a 1099 at year end. Or, when you give him his walking papers you can have him sign a promissory note, include a repayment schedule. If he fails to pay in a reasonable amount of time, (if he has a new job) threaten to garnish his wages. That always works for me, a new employee never wants his wages garnished. The threat is generally enough to get the person to pay up.

pork1 · May 2005

CAROLISO: I would include an approval list for travel advances including any number of persons in his chain of authority. These managers need to know that company assets have been placed "in advance" in the hands of their sales staff and should they be removed or quit on their own these advance dollars should be collected back with the last pay check or listed on the 1099 as additional income, as opposed to an expense.

PORK

LivindonSouth · May 2005

I've known of many situations where the money, in such cases, was deducted from the final settlement. And I have never, ever known of a situation where the ex-ee actually challenged it, other than to bitch a little. We did it with regularity at the last place I worked, primarily with outstationed sales staff who would not repay the expense advance or would not return installation and research tools. I guess there are cases where the employer simply has to decide whether it wants to assume the risk of expediently collecting its money.

Pixie · May 2005

LivindonSouth, our company has also been known to do the same, withhold expense advances from final checks for our sales staff. But, what we have found, especially with our illustrious sales staff, they'll quit and not say a word, so when the regional manager finally figures out the person is gone, we're stuck so we issue a 1099 for misc income and the employee then has to pay tax at year end and we're not stuck with the er portion of fica. You are correct that an ee will rarely (if ever) challenge the deduction from final wages.

HRinFL · May 2005

I have been researching an issue very similar to this. I looked at the FLSA language on the DOL's website. Reviewing the actual regs did not give much help, it talks about garnishing wages as a result of some settlement (award through litigation, child support, etc.). It says that you cannot take more than 25% of someone's disposable income, or the difference in income and 30 times the current minimum wage rate. It does not address repayment for wages, which is how I view the suituation in the original post. I went to [url]www.dol.gov/elaws[/url], and there was a section that stated the DOL does not have regs on payment or collection of wages. To me, that means that the er is able to set policies to recoup advances of wages, be they relocation expenses, paid time off, etc. We take repayments from ees' last pay checks and, though sometimes questioned, we have not had any issues arise from this practice. I think the key is whether it is viewed as "compensation." Trying to collect for uniforms, equipment, etc. are not wages so the ee would have to give approval for these deductions. JMHO.

pork1 · June 2005

I have always pushed the company to set up policy and systems such that any placement of cash into the hands of an employee is documented as an "advance of wages", otherwise, the company becomes a banking institution, which is not the primary function of the company, unless of course, you are a bank. Therefore, any advance of wages is collectable or already paid money to the employee, when we reach settlement time on close out of employment or even a transfer within the company. If it is only a transfer, then set up an accounts receiveable account and deduct from current payments the "advance of wages" over time but with in reason.

Shadowfax · June 2005

The real issue is state law - most states prohibit an er w/hold w/o specific written authorization. But, as others have said, what's the worst that can happen? The theory behind the rule is pretty sound: the employer should be in no better position than any other creditor to ganish an ee's wage, and, when the er does it, it occurs w/o the protection of the court to oversee the process, where, among other things, the court can be assured the ee's wages are not already be garnished and the total garnishment does not exceed some state mandated max (typically 25%).

Can I deduct from paycheck?

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