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 FINAL
PAY
Wage deduction problem under the Texas Payday
Law
Tommy Simmons, Texas Workforce Commission
Paul Pauken, Chairman Allowable Deductions
Under section 61.018 of the Texas Payday Law, there are three categories of allowable deductions from an employee’s wages: court-ordered garnishments, deductions required or specifically authorized by a statute, and any deduction that is made for a lawful purpose and authorized by the employee in writing. Put another way, all deductions, other than payroll taxes, court-ordered garnishments, and other deductions either required by law or specifically authorized by statute, must be both lawful and specifically authorized in writing by the employee.
There are two main problem areas with deductions under the Payday Law.
One consists of cases stemming from deductions that are allowed under the law, such as deductions for loan repayments or other common purposes, but for which the employer has failed to get written authorization from the employee.
The other category consists of claims resulting from deductions that the employee may have authorized in writing, but which violate state and/or federal laws. That would be the case, for example, with deductions that violate the minimum wage or overtime laws, that have to do with debts arising from illegal transactions (such as illegal gambling or contraband), or that violate certain other laws providing limitations on what employers can take from an employee’s pay, such as the limitations on the amounts to be deducted for child support garnishments, IRS tax levies, or student loan wage attachments (see V.T.C.A. Family Code Section 158.009, 26 U.S.C. 6334(d), and 20 U.S.C. 1095a(a)(1), respectively).
Keeping Deductions Legal — Tips and Strategies
It is best to have all employees sign a wage deduction authorization agreement (see an example of such a form in the book
Especially for Texas Employers at www.twc.state.tx.us/news/efte/wage_deduction_authorization_agreement.html) listing all the various types of deductions from pay that might be made and the amounts (as specific as possible) that would be deducted in case those situations were to arise.
In addition to the wage deduction authorization agreement, certain deductions should be individually and specifically authorized in writing to give the employer the greatest amount of protection in case a wage claim is filed. Those would include any type of loan or wage advance; before the money changes hands, the employer should have the employee sign a detailed receipt and repayment agreement specifying what the installment payments will be and what happens to a balance remaining when an employee leaves the company. Similarly, before an expensive piece of equipment is checked out to an employee, the employee should sign a form acknowledging receipt, promising return of the item in good shape, and specifically authorizing a deduction from pay in a specific dollar amount in case of damage or non-return of the item.
Texas Payday Law Deduction Summary
Required or specifically authorized by statute - no authorization needed:
• Court-ordered child support and alimony*
• Guaranteed student loan wage attachment*
• IRS tax levy*
• Withholding and FICA taxes*
• Any garnishments mandated by a federal court (such as in bankruptcy cases)*
• Child and spousal support administrative fees*#
• Student loan wage attachment administrative fee*#
Allowed by law - employee authorization needed:
• Meals, lodging and other facilities*
• Voluntary wage assignments*
• Loans*
• Wage or salary advances*
• Vacation pay advances*
• Wage overpayments*
• Uniform and uniform cleaning costs (including hard hats, steel-toed boots, required tools, and the like)*
• Union dues*
• Misappropriated cash* (proof of employee’s guilt needed)
• Any other deduction for a lawful purpose - examples:
• Store inventory sold to employees on credit - treat this as a loan and get a written repayment agreement from the employee*
• Personal use of company equipment or accounts - if possible to do so in advance, treat this as a loan and get a written repayment agreement from the employee*
• Non-work-related training paid for by the company - treat this as a loan and get a written repayment agreement from the employee; the same applies to education loans and relocation expenses advanced to an employee*
• Employee’s traffic tickets, bail, and court costs paid by the employer - before paying anything like this, the employer should get a written agreement from the employee to the effect that the payment is a loan or wage advance*
• Damage or losses caused by the employee#
• Employee physicals and drug screens#
• Interest on loans#
• Sick leave pay advances#
* Allowed as a deduction below minimum wage.
# Not allowed as a deduction below minimum wage.
For details on bottom-line limits for wage deductions, see the topic “Allowable Deductions Under the FLSA” in the book at
www.twc.state.tx.us/news/efte/allowable_deductions.html.
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