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| Is your employer making lawful deductions from your paycheck? (part 1) |
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At pay day, an employee may look at his or her pay stub and see hours worked, salary or hourly rate, gross earnings, and “deductions.” Unless the deductions have been explained, some employees will have vague ideas about what the deductions are for. There was the story of basketball superstar, Shaquille O’Neal who, while looking at huge deductions on his paycheck, asked, “Who is Mr. FICA?” (Alas, “Mr. FICA” is really the Taxman, officially called the Federal Insurance Contributions Act tax.) Some even shrug these deductions off and see them as inevitable like death and taxes. Funny or not, it is helpful to know whether the right deductions are made to ensure that the employee gets the correct take home pay.
A deduction is essentially a subtraction of money from the employee’s paycheck. The employer takes a ‘deduction’ when it withholds, sets off, or requires the employee to return, a portion of the wages promised so that the employee, who has done the work, actually receives less than the promised compensation. In order to protect employees, the law regulates deductions. Therefore, there are certain deductions that employers may or may not make.
The following are permissible deductions from an employee’s paycheck:
1) Deductions authorized by state or federal law – These deductions include state and federal income taxes, social security taxes, and state disability insurance taxes. Wage garnishments are authorized only if there is a prior court judgment. Creditors cannot simply ask the employer to deduct money from an employee’s wages to pay the employee’s debts to the creditor. The creditor must seek an order from the court to do so. If there is no such order (or judgment), a creditor cannot garnish an employee’s wages.
Once a judgment has been issued, however, the creditor (now called a judgment creditor) may levy what’s called ‘a writ of execution’ and compel the employer to withhold and turn over to the levying officer 25% of the employee’s (now called the judgment debtor) earnings. If the debt was due to an outstanding support order, the levying officer may withhold as much as 50% of the employee’s earnings.
2) Deductions expressly authorized by the employee in writing – Examples of deductions that an employee may authorize in advance include: premiums for life, health or disability insurance, contributions to pension or retirement plans, and other deductions made pursuant to voluntary wage assignments. However, the employee must authorize these deductions in writing.
3) Deductions to cover health and welfare or pension plan contributions expressly authorized by collective bargaining or wage agreement – These deductions may normally be found if an employee is a member of a union and the deduction is made according to the terms of the Collective Bargaining Agreement (CBA).
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