Employees can be costly. They may damage your property, fail to return items “borrowed”, and may even cause you to lose a customer or two. While docking an employee’s pay seems to be the logical solution to matters such as this, there are very specific laws that limit an employer’s ability to do so. In the end, an employee’s right to his/her wages earned supersedes the employer’s right to recoup losses.
In the state of Indiana, as in most states, the employee must give the employer written permission to deduct wages for any reason other than court ordered garnishments or tax levies. The document providing permission must be in writing, be signed by the employee, be revocable with written notice to the employer, and be presented to the employee within ten (10) days of execution.
In general, once this permission is received, an employer can legally deduct insurance premiums/contributions; union dues; charitable contributions; employer to employee loan payments; and voluntary agreed upon deductions such as tools, from an employee’s pay. (Each state has it’s own list of acceptable deductions.) Where it gets “sticky” is when an employer attempts to deduct dollars from an employee’s pay without prior authorization/consent. For example, Indiana law specifically states that it is “unlawful” for an employer to “fine” an employee for any reason by means of wage deduction.
If an employer experiences significant loss due to the actions/negligence of an employee, the employer is left with 3 choices:
- Create a signed written repayment agreement that authorizes the wage deduction – don’t coerce the employee to sign, however, or it may come back to bite you. Also keep in mind that some states require that the agreement allow for open-ended revocation by the employee;
- Simply eat the cost; or
- Take the matter to small claims court (or beyond depending on the severity).
As with all things HR, documentation is key. Know all the facts, dates, and dollars associated with the incident or loss, and be certain the employee is at fault before attempting to collect anything through payroll or the courts.
AccuPay HR is an “HR On Demand” consulting service we provide to our clients who want “some HR” at budget friendly prices. AccuPay HR is staffed by HR professionals who are credentialed in HR by SHRM and/or HRCI. If you are interested in AccuPay HR’s “On Demand” HR consulting services, call Betsy Wilson, PHR, at 317-885-7600.