by Susan Prince, JD, Legal Editor

Federal law on deductions from pay often hinges on whether a certain deduction can reduce an employee’s wages below the minimum wage or not. The rules discussed in this article apply only to nonexempt employees who are covered by minimum wage requirements. In general, deductions from pay should be made only where required by law or authorized in writing by the employee.

Deductions from pay that may not reduce wages below minimum

The Fair Labor Standards Act (FLSA) does not allow items which are considered to be primarily for the benefit or convenience of the employer to be included as wages. Therefore, an employer may not take credit for these types of items when paying minimum wage and overtime:

• Uniforms. Employers may deduct the cost of providing and maintaining employee uniforms if uniforms are required by law, by custom, or by the employer. The uniform must be an actual uniform (or a specific pair of shoes) and not just a certain type of basic street clothing or shoes, and the deduction must not reduce wages below the minimum. The resulting wage must be at least the federal minimum wage.
  Employers at times require employees to pay or reimburse the employer for other items. The cost of any items which are considered primarily for the benefit or convenience of the employer would have the same restrictions as apply to reimbursement for uniforms.
• Tools. No deduction for tools of the trade may be made from an employee's wages which would reduce the employee's earnings below the required minimum wage or overtime compensation.
• Damage to the employer’s property. Damage may be deducted from pay, but the resulting wage must be at least the federal minimum wage.
• Theft of the employer’s property by the employee. Employees may not be required to pay for any of the cost of stolen items if, by so doing, their wages would be reduced below the required minimum wage or overtime compensation.
• Personal use of company car. Employers may deduct this cost, but only if the employer does not benefit from such use and it does not drop the employee’s pay below minimum wage.

Deductions from Pay That May Reduce Wages Below Minimum

An employer may deduct the reasonable cost of providing the following items, even if the employee's cash wage drops below the minimum wage:

• Federal, state, and local taxes. The required withholdings for federal, state, and local taxes, including FICA, may reduce wages below the minimum wage. However, an employer may not deduct from the employee's wages taxes that the employer is required to pay.
• Meals, lodging, and other facilities. The reasonable cost or fair value of meals, living quarters, or other facilities may be credited as part of the minimum wage. “Fair value” is not retail value and it may not include any profit to the employer or its associates. The employees must be told that these amounts are being deducted from their wages, and they must voluntarily accept the deductions. The facilities must be for the benefit of the employees. If they are for the employer's benefit, they may not be credited against the minimum wage.
• Transportation provided by the employer. This may be credited against the minimum wage, but only if the travel time does not count as time worked and is not necessary to the employer.
• Fuel and merchandise. Fuel for residential heating and cooking and general merchandise provided by company stores may be credited against the minimum wage, but only if they are reasonably connected to board or lodging.
• Instructional costs. Tuition furnished by a college to its student employees may be credited against the minimum wage.
• Deductions that benefit the employee. This category includes deductions for life insurance, health insurance, pension, and welfare plans; contributions to charity; repayment of salary advances; and the purchase price of U.S. Savings Bonds. These deductions may cut into the minimum wage if the employee freely assents and if the employer derives no profit or benefit from the deductions.

Keep in mind that many states regulate wage deductions much more strictly than does the federal government. Accordingly, the rule that is most advantageous to the employee will control.

Susan E. Prince, J.D., is a Legal Editor for BLR’s human resources and employment law publications. Ms. Prince has over 10 years of experience as an attorney and writer in the field of human resources and has published numerous articles on a variety of human resources and employment topics, including compensation, benefits, workers’ compensation, discrimination, work/life issues, termination, and military leave. Ms. Prince also served as an expert on several audio conferences discussing the 2004 changes to the federal regulations under the Fair Labor Standards Act. Before starting her career in publishing, Ms. Prince practiced law for several years in the insurance industry and served as president of a retail sales business. Ms. Prince received her law degree from Vermont Law School.