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MRSC has joined with Janice Corbin and Janet May, Partners, Sound Employment Solutions, Rhonda Hilyer, President, Agreement Dynamics,and Bruce Schroeder, Employment/Litigation Attorney, Summit Law Group, to bring you the "HR Advisor" article series on employment and labor law issues affecting Washington local governments. The "HR Advisor" will feature a new article each month with timely HR management information and advice you can use.*
Make Sure Your Agency Is In Compliance with New Payroll Deduction Rules
April 2006
Bruce Schroeder
Employment/Litigation
Attorney
Summit Law Group,
PLLC
As experienced personnel managers know all too well, running afoul of laws protecting employee wages (even inadvertently) can subject an employer to liability for damages and attorney fees. Understanding the rules governing employee wages is therefore critical. In late November of last year, the Department of Labor and Industries changed these rules to some extent by issuing several new regulations addressing an employer’s ability to make deductions from employees’ pay. The new rules, which went into effect January 1, 2006, address the situations in which an employer can make deductions from an employee’s final paycheck upon termination and during ongoing employment (a third new regulation addresses the recoupment of overpayments to an employee, but is applicable only to private sector employers). Because they are more complex and detailed than the prior regulatory guidance, employers should review their payroll practices and policies to ensure compliance with the new rules.
Deductions from Final Wages (WAC 296-126-025)
The new rule regarding deductions from final paychecks addresses when an employee must give permission for a deduction, and when a deduction is allowed to reduce an employee’s wages below the minimum wage.
Permissible Deductions Without Employee Agreement: In the following situations, an employer may deduct from an employee’s final wages without the employee’s permission, and even where the deduction causes the final gross wages to go below the state minimum wage:
- Where the deduction is required by state or federal law;
- Where the deduction is for medical, surgical or hospital care or service, provided that the services are not covered by workers compensation (note: this provision is for actual medical costs; deductions for insurance are addressed below and must be authorized in writing by the employee);
- Where the deduction is to satisfy a court order, judgment, wage attachment, trustee process, bankruptcy proceeding, or payroll deduction notice for child support payments.
Permissible Deductions With Employee Agreement: In the following situations, an employer may deduct from an employee’s final wages if the employee has given written or oral permission, and even where the deduction causes the final gross wages to go below the state minimum wage:
- For pension, medical, dental or other benefit plans when such agreements have been specifically agreed upon orally or in writing in advance by the employee and employer;
- For a payment to a creditor or third party if the employee authorizes it orally or in writing in advance to pay a sum for the benefit of the employee. The regulation clarifies that a “creditor” may be the employer, such that deductions for the repayment of a loan would be permitted if authorized by the employee.
Note: Although the regulation provides that the employee’s permission can be written or oral, it will be the employer’s burden to establish that the employee agreed to a particular deduction. It is therefore advisable to get any authorization for a payroll deduction in writing.
Other Permissible Deductions, As Long As Deduction Will Not Reduce Pay Below The Minimum Wage: An employer may deduct from an employee’s final wages without the employee’s permission in the following circumstances as long as: (1) the deduction does not reduce the employee’s final gross wages below the minimum wage; and (2) the incident that is the basis for the deduction occurred during the final pay period:
- For acceptance of a bad check or credit card in violation of procedures that the employer previously made known to the employee;
- For any cash shortage from a cash register, drawer or portable depository if the employee had sole access to the cash and participated in the cash accounting at the beginning and end of his/her shift;
- For any cash shortage, customer walkout, breakage or loss of equipment if caused by a dishonest or willful act by the employee;
- For employee theft if the employer can show that the employee’s intent was to deprive and if the employer filed a police report.
Deductions During Ongoing Employment (WAC 296-126-028)
Permissible Deductions Without Employee Agreement: As is true for final paychecks, an employer may deduct from an employee’s paycheck during ongoing employment without the employee’s permission, and even where the deduction causes the employee’s wages to go below the state minimum wage in the following situations:
- Where the deduction is required by state or federal law;
- Where the deduction is for medical, surgical or hospital care or service, provided that the services are not covered by workers compensation (note: this provision is for actual medical costs; deductions for insurance are addressed below and must be authorized in writing by the employee);
- Where the deduction is to satisfy a court order, judgment, wage attachment, trustee process, bankruptcy proceeding, or payroll deduction notice for child support payments.
Other Permissible Deductions: An employer may deduct from an employee’s paycheck in other situations only where the employee “expressly authorizes the deduction in writing and in advance for a lawful purpose for the benefit of the employee.” Such deductions are permitted even if the deduction puts the employee’s wages below the minimum wages. Examples of deductions permitted under this provision include deductions to repay a loan the employer made to the employee, and deductions for monthly pension, medical, dental or other benefit plans.
Adjustments for Overpayments
While the Department of Labor & Industries also promulgated a new rule addressing the recoupment of wage overpayments, this new rule is applicable only to private sector employers. For public employers, wage overpayments are governed by preexisting statutes, RCW 49.48.200 and 49.48.2 10, which specify the steps a public entity must follow to recover wage overpayment to employees. In a nutshell, those statutes require a public employer to provide written notice to the employee, via certified mail, specifying the amount of the overpayment, the basis for the claim, a demand for payment within twenty calendar days of the date on which the employee received the notice, and the rights of the employee under RCW 49.48. RCW 49.48.210 affords the public employee certain procedural rights to challenge the employer’s claim of overpayment. Once the employer’s right to recoup an overpayment is established, RCW 49.48.200 provides that the public employer can recover the overpayment via deduction from an employee’s wages provided that each deduction shall not exceed (absent other agreement between employer and employee): (a) five percent of the employees disposable earnings in a pay period other than the final pay period; or (b) the amount still outstanding from the employee’s disposable earnings in the final pay period.
Public employers who discover a wage overpayment should carefully review the requirements of RCW 48.49.200 and. 210 to ensure that all of the statutory requirements are followed under the particular facts.
| Bruce Schroeder is an employment / litigation attorney with Summit Law Group, Seattle. Bruce's practice is concentrated on representing management in the entire range of employment law matters. More. |  |
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Janice Corbin is a partner with
Sound Employment Solutions, LLC, Seattle. Janice has over 15 years of
human resources experience with the Seattle Police Department and the
International Harvester Truck Company and has worked in the law enforcement
field for over 22 years.
More. Janet May is a partner and attorney with Sound Employment Solutions, LLC, Seattle. Janet has over ten years of experience in the labor and employment law field, and has represented both management and labor. More. |
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| Rhonda Hilyer, President and Founder of Agreement Dynamics, is an international consultant with a reputation for helping convert traditional, conflict-based environments into productive, collaborative ones. More. |  |
*The Articles appearing in the "HR Advisor" column represent the opinions of the authors and do not necessarily reflect those of the Municipal Research & Services Center.