OVERVIEW OF THE NEW L & I PAYROLL DEDUCTION RULE

The Washington State Department of Labor and Industries has issued a new administrative rule replacing the previous employer deduction rule concerning deductions from an employees paycheck.   The new rule is more explicit and defines permissible deductions made from an employees paycheck, and which deductions may or may not reduce an employees paycheck below the level minimum wage for the hours worked.  The rule also differentiates between deductions allowed from an ongoing paycheck, and a final paycheck.  These new provisions are contained in WAC 296-126-025, through 029 and become effective on January 1, 2006.

This rule does not prevent an employer from filing a civil lawsuit in court to collect amounts owed them by an employee but offers a much simpler, faster and cost effective method for an employer to recover for specific expenses in limited circumstances.

DEDUCTIONS FROM ALL EMPLOYEE PAYCHECKS

The following deductions are allowed from all employee paychecks (including both final and ongoing employees) even if the employees gross wages fall below the minimum wage level for the number of hour worked.

·     Deductions required by state or federal law (taxes, Social Security, etc.)

·     Deduction for medical, surgical, or hospital care or service

·     Deductions to satisfy a legal order (Judgments, wage attachments, trustee process, bankruptcy proceedings, payroll notice for child support payments).

 DEDUCTIONS ALLOWED FROM ONGOING EMPLOYEE PAYCHECKS

Other deductions may be taken from an ongoing employee's paycheck only if the employee agrees specifically in writing prior to the deduction. The deduction also must be for a legal purpose and neither the employer nor anyone acting in the interest of the employer is allowed to make any profit or benefit from the transaction.

·     The price of products sold to an employee must be the same or a lower price than that for which the products are sold to customers,

·     To deduct for an employer loan the terms and interest must be agreed to in advance and in writing. The employer may only charge reasonable interest. This term is not further defined and an employer should carefully document the reasonableness of the interest in their records.

·     The employer must identify all deductions openly and clearly in the payroll records.

DEDUCTIONS ALLOWED FROM AN EMPLOYEE'S FINAL PAYCHECK

The following deductions may be taken if agreed to by the employee either orally or in writing before the deduction is taken even though they reduce the employees gross wages below the minimum wage level for the hours worked.

•      Payment of pension, medical. dental or other benefit plans for payment to a creditor or third party for the benefit of the employee.

•      Payment to a creditor or third party. (pay-day loans are permitted to be repaid only if the loan document itself expressly provided for repayment of the remaining balance of the loan from the employees final paycheck_

ALLOWED DEDUCTION OF LOSSES FROM AN EMPLOYEE'S FINAL PAYCHECK

An employer may deduct losses from an employee's final paycheck only if the incidents giving rise to the withholding happened during the final pay period and satisfy specific factual requirements. These deductions MAY NOT reduce the employees paycheck below the minimum wage for the hours worked. Events causing recoverable losses are:

•      Accepting a bad check or credit card is deductible only if the employee violated procedures they were informed of before the transaction occurred,

•      A shortage in the cash register, drawer, or another container provided to contain money can be deducted only if the employee had sole access to the money, and participated in the cash accounting at the beginning and end of the shift.

•      A cash shortage, failure of a customer to pay, breakage or loss of equipment may only be deducted if it was caused by a dishonest or willful act of the employee.

•      Employee theft may only be deducted if the employer can show that the employee intended to deprive the employer of the money or property and a police report has been filed.

When making any deduction the employer is required to record all wage deductions clearly and openly in the employers payroll records.

Should you have any questions concerning these new regulations or would like further information contact:          

The foregoing is not intended and should not be construed to constitute legal advice, nor should any of its contents be relied upon as such. Should you wish legal advice you should contact and obtain the assistance of an attorney of your own choosing.