Both the United States and Michigan have many laws regarding what kinds of paycheck deductions employers may take. As a general rule, however, an employer may deduct money when the employee legally authorizes it, so long as neither results in reducing the employee’s paycheck below the minimum wage. This blog will explain in greater detail why and when deductions are allowed, so please read until the end to better understand your paycheck rights. If you are ever concerned about discrepancies in your wages and paycheck, get in touch with a Marquette wage and hour lawyer who will analyze your case and tell you what you should do.
Authorized Paycheck Deductions
The first kind of permissible deductions are those the employee themselves has authorized. Both federal and state law speak to employee-authorized deductions, under the federal Fair Labor Standards Act (FLSA) or Michigan’s the Payment of Wages and Fringe Benefits Act (PWFBA).
Some deductions an employee may legally authorize include:
- Deducting their income, Social Security, and Medicare taxes
- Deducting a debt the employee may owe, such as loans or pay advancements
- Deducting child support and alimony payments
- Deducting union dues, insurance premiums, or retirement contributions
These kinds of deductions are intended to benefit the employee, such that the employer helps the employee set aside money the employee would always need to pay. If a deduction would be primarily for the employer’s benefit, it is known as an indirect deduction. Indirect deductions can be things like requiring a bartender to buy a bottle opener with the bar owner’s name on it.
In these cases, the FLSA does not allow the deduction to cut so far into the employee’s pay that they fall under the federal minimum wage. In conjunction, the PWFBA forbids deductions that would lower pay below Michigan’s state minimum wage. Additionally, the PWFBA requires the employee to authorize all deductions in writing.
Paycheck Deductions Due to Overpayment
In some situations, the employer may also subtract money from the employee’s check if overpayment either in wages or fringe benefits had earlier occurred. The employer will be able to deduct the overpayment even without written consent when specific conditions are met.
The employer must make the deduction within six months of the overpayment, and the overpayment itself must have occurred due to a miscalculation, a typo, or a comparable error. One pay period before making the deduction, the employer will present the employee with a written explanation of why this was done. However, the deduction cannot be more than 15% of the employee’s gross wages during that pay period. As with other deductions, deducting for an overpayment can’t lower the employee’s gross pay under the state or federal minimum wage.