Non-Exempt Employees: Is that Deduction Permitted?
Make sure you understand and comply with the federal and state rules on deductions from non-exempt employees' pay.
The Fair Labor Standards Act (FLSA) and state laws govern the circumstances under which employers are permitted to make pay deductions for job-related expenses. Under the FLSA, these restrictions differ depending on whether the employee is classified as exempt or non-exempt. Below, we cover the rules for non-exempt employees.
Non-exempt employee deductions
Under the FLSA, the general rule for non-exempt employees is that deductions considered primarily for the employer's benefit or convenience must not reduce a non-exempt employee's pay below the minimum wage or reduce any overtime pay due. This is true even if an economic loss suffered by the employer is due to the employee's negligence.
Examples of items for which this rule applies include:
- Cash shortages
- Work tools used by the employee
- Employer-required uniforms
- Damages to company property by the employee or any other individual
- Financial losses due to clients/customers not paying bills
- Theft of company property by employees or any other individual
If a non-exempt employee works overtime, the above deductions are limited to the amount that could be deducted if the employee had only worked a 40-hour week.
Keep in mind that employers are prohibited from attempting to circumvent the minimum wage and overtime requirements by having the employee reimburse the employer in cash for the cost of such items, rather than deducting the cost from the employee's wages.
State law may further limit or even prohibit certain deductions from employees' wages. For example, in California, if an employer requires an employee to wear a uniform, the employer must cover the full cost of the uniform.
Work tools
Some states require employers to pay the full cost of required tools and equipment. * In these states, the employer would either have to pay for the tools up front or reimburse employees.
If there is no state requirement to pay for tools and equipment, then you must ensure that any costs the employee bears do not reduce their pay below the minimum wage or cut into overtime pay.
*Note: Some states make exceptions for certain types of tools or equipment, such as tools and equipment customarily required by the employee's trade. Check your state law for more information.
Uniforms
Under the FLSA, deductions from a non-exempt employee's wages for uniforms and associated maintenance must not reduce the employee's pay below the minimum wage nor reduce their overtime pay. Similarly, employers cannot require employees to pay for these costs without reimbursement if it would result in their pay being reduced below the minimum wage.
The requirement with respect to the maintenance of employer-required uniforms doesn't apply if the uniforms are:
- Made of "wash and wear" material
- May be routinely washed and dried with other personal garments
- Do not require ironing or other special treatment
Note: Some states prohibit employers from requiring employees to pay for any uniform costs, even if the employee is paid more than the minimum wage. Check your state law for details.
Employee consent is typically required
Under federal law, employers are generally required to obtain an employee's consent before they subject the employee to a permissible deduction. The agreement must be specific concerning the items for which deductions will be made, the employee must know how the amount of the deductions will be determined, and the agreement should be in writing. Your state may have additional requirements. Many employers obtain this consent at the time of hire.
Learn more
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This article was originally published as an "ADP HR Tip of the Week" which is a communication created for ADP's small business clients.
