What Can and Cannot be Deducted from Employee Wages?

Payroll deductions are governed by both state and federal law and generally fall under one of two categories:

1. Deductions authorized by law or
2. Deductions which are both voluntary authorized by the employee and for the employee’s benefit.

Legally authorized deductions are mandatory deductions that employers must withhold from employees’ wages.

These deductions include:

1. Federal income tax;
2. State and local income tax;
3. Social security tax;
4. Medicare tax; and
5. Court-ordered garnishments such as child support, alimony, tax levies or creditor garnishments.

Voluntary deductions are allowed only if the employee voluntarily agrees to the deduction.

These deductions include:

1. Health, dental, vision and life insurance policies;
2. Retirement plan contributions;
3. Union dues;
4. Charitable contributions;
5. Flexible spending account (FSA) contributions; and
6. Loan repayments to employer (with proper agreement) (only in some states).

Notably, employers cannot make deductions from employee wages for the following reasons if doing so would result in an employee earning less than the federal or state minimum wage, whichever is higher:

1. Payment for uniforms;
2. Payment for tools and equipment; and
3. Payment for shortages at the cash register or broken items.

Even if the above three deductions would not drop an employee’s wages below minimum wage, many states require that voluntary deductions be for the employee’s benefit and not the employer’s and therefore do not permit deductions for loan repayments, reimbursement of equipment employees need to purchase for work, or similar items.

It is important to understand that the above listed deductions can vary significantly from state to state. In some states, such as New Jersey, these three deductions are not permitted under any circumstance.

Additionally, at a federal level, employers are allowed to deduct for lodging and meals, even if it means the employee is being paid less than minimum wage, but employers are only allowed to do so if the lodging and meals are for the benefit of the employee and only if this is customary in the industry.

Wage deductions are a complicated area of law and legal counsel should be sought when hiring workers in a new state, or when implementing new deductions.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates.

Courtney M. Roman, Esq. is an associate at Rimon, where she practices in the areas of bankruptcy and creditors’ rights, corporate restructuring, labor and employment and litigation. In May of 2022, Courtney received her Juris Doctor from New York Law School. Prior to attending law school, Courtney received her undergraduate degree in English in 2018 from Binghamton University. During law school, Courtney served as a member of the Family Law Quarterly. Read more here.