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June 02, 2011
Payroll Laws: Can You Make Pay Deductions for Lost, Damaged Equipment?

Whether an employer can make deductions from an employee's pay for lost or damaged equipment depends on whether the employee is exempt or non-exempt, Kathy R. Neal explained in an M. Lee Smith Publishers LLC webinar titled "Overcoming the 8 Toughest Wage & Hour Problems: How to Avoid DOL's Ramped Up Enforcement."

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Employees are often provided company laptops, smart phones, and vehicles, and that raises several questions regarding deductions from pay:

  • What happens when those items are lost, damaged or stolen?
  • Can employees sign agreements authorizing pay deductions for repair or replacement costs?
  • Can you require an employee to pay out-of-pocket for damages?

Exempt Employees

The general rule for exempt employees is that their salary is not subject to reduction, but there are limited exceptions to that general rule. However, with improper deductions, employers risk forfeiting employees' exempt status. If exempt status is forfeited, the employer would become responsible for paying for overtime worked.

Non-Exempt Employees

The rule is different for non-exempt employees:

  • Because they are not paid a guaranteed salary, payroll deductions for damaged or lost company property are permissible.
  • However, deductions may not reduce an employee's pay below minimum wage or any overtime premium that may be due.
  • It is very important that employers get the employee's written agreement to the deduction in advance.

Kathy R. Neal, of counsel with McAfee & Taft, focuses her practice on the representation of employers with respect to all aspects of their relationships with employees. She has broad experience at both federal and state courts, before administrative and regulatory agencies, and in arbitration and mediation. Her litigation experience includes defense of claims of discrimination, wrongful retaliatory discharge, breach of contract, enforcement of noncompetition and confidentiality agreements, and wage and hour disputes. She also counsels employers and provides management training on best practices to avoid employment disputes. She can be contacted at kathy.neal@mcafeetaft.com.


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