Paying employees is among the top legal obligations of employers. Whether due to financial difficulties or worker conduct, it is generally illegal to withhold payment from employees. The U.S. Department of Labor (DOL), as well as state labor boards, have strict laws that address wages. Failure to pay employees could result in a lawsuit, an injunction, civil penalties, or even criminal penalties.
There are limited instances when withholding pay is permitted. Given the strong worker protection laws on the books and the punishments that employers can face for not paying employees on time and in full, employers should not attempt to withhold pay without consulting legal counsel.
Laws Against Not Paying Employees
The Wage and Hour Division (WHD) of the DOL is tasked with ensuring that workers are properly paid for all the hours they work. It is a duty that the agency takes seriously. In fiscal year 2019, the WHD recovered a record $322 million in wages owed to workers.
The DOL is proactive in its efforts to “help job creators understand their responsibilities under the law,” holding thousands of educational outreach events per year. Those responsibilities include complying with the following workers’ rights:
- The right to prompt pay
- The right to receive a final paycheck promptly after leaving a job
- The right to collect ordered back pay
- The right to not have pay docked for poor performance or as punishment
- The right to be paid for all compensable hours
State Labor Laws
In addition to DOL laws, states have their own laws on paying employees that may be different and stricter than federal laws. Employers must comply with the law that provides the greater benefit to employees. Check with your state’s labor office or consult with a local employment attorney to make sure you understand what’s required.
Exempt vs. Nonexempt Employees and the FLSA
Many of the DOL’s regulations are promulgated under the Fair Labor Standards Act (FLSA). Importantly, the FLSA differentiates between “exempt” and “nonexempt” employees. Exempt employees are salaried workers who receive the same amount of pay for each pay period regardless of the number of hours worked. Exempt employees, who are not covered by the FLSA, typically include upper-level positions, such as executives.
The primary difference between exempt and nonexempt employees has to do with overtime pay. However, the FLSA can also affect pay docking and other aspects of employment. For example, some types of pay docking are permissible for exempt employees but not permitted for nonexempt employees. This includes salary reductions for violating a written policy. Improper pay docking could subject an employer to penalties and jeopardize a worker’s exempt status.
Payments that Employers May Legally Deduct
Employers are permitted to make certain deductions from employee paychecks. Legal deductions include the following:
- Required deductions such as state and federal taxes, Social Security contributions, and court-ordered wage garnishments
- Agreed-upon deductions such as pension and health insurance contributions, lodging and meals, union dues, and charitable contributions; note that these deductions must be agreed to in writing
- Accounting errors (e.g., paying an employee the wrong wage or for the wrong number of hours), which can usually be recouped by the employee out of a future paycheck as long as the deduction does not put the employee below minimum wage
- Deductions to pay back a debt such as a payday loan, with an employee’s written permission, even if they reduce a worker’s pay to below minimum wage
When You Might Think You Can Withhold Pay (But It’s Probably Illegal)
It might seem as though an employer should be entitled to withhold payment in some situations. For the most part, though, employers should think twice before withholding payment, even in these situations:
- A terminated employee fails to return company equipment. Both state and federal laws mandate when a terminated employee must receive final payment, and there are no exceptions that pertain to unreturned equipment, so payment cannot be withheld past the date specified by law, even if the employee has failed to return company equipment. For nonexempt employees, depending on state law, an employer may be able to deduct the cost of unreturned equipment with written authorization.
- An employee is believed to be the cause of a cash shortage. You cannot simply pay an employee less if you suspect they are the reason for a cash shortage. Although federal law does not prohibit deductions for shortages, most states do. You may be able to discipline an employee for not following company procedure or take them to court and prove they took the money. Under limited circumstances, deductions for cash shortages can be made from employees who consented to them in writing, provided that the deduction does not put the employee below minimum wage. The same rules also apply to property damage and the acceptance of bad checks.
- An employees takes breaks. There is no federal law mandating lunch, meal, or break periods, but some states require meal periods. Employers that choose to offer these breaks do not have to pay employees for genuine breaks that last thirty minutes or more. Shorter permitted breaks of around five to twenty minutes are compensable. Employers that offer coffee breaks cannot dock workers who take them.
Penalties for Not Paying Employees
Employees that believe their pay was improperly withheld can complain to the DOL and their state labor office. A complaint can lead to an employer investigation and several different enforcement actions. The DOL may take the following actions:
- File a lawsuit on behalf of employees for back wages, liquidated damages, and civil money penalties
- Seek an injunction from a U.S. district court
- Seek an order from an administrative law judge for payment of civil money penalties
In addition, employees may file a private lawsuit to recover back wages, liquidated damages, attorneys’ fees, and court costs. Employers that willfully violate the law could also be subject to criminal penalties, including fines and imprisonment. Furthermore, employers are prohibited from retaliating against employees who report potential payment violations.
Do not let a minor payment dispute escalate into a major wage and hour lawsuit. When in doubt about who is in the right—you or your employee—do not hesitate to reach out to our office for employment law advice
I am an Independent Contractor Soccer Coach for a Youth Soccer Club. My Club Directors have mandated that we sign a code of conduct and have said they will be withholding pay until we sign it. Is it legal for the Club to withhold pay for an Independent Contractor until I sign this Code?
I am in California.
I have a question regarding an increasingly likely scenario.
There are many employees that began working from home permanently due to Covid-19 in the last year or so. Some of those employees even moved out of the state their employer is based in and where they used to go into work. Now, their employers are withholding pay from their paycheck due to being taxed in both states. I realize that double taxation is against federal law and thus illegal. However illegal it may be, the employer can simply say that they are not double taxing you because you can file two state tax returns to get the money back that they over withheld from your paycheck. That in and of itself sounds incredibly dishonest and sounds like they are simply trying to cover their backs because their automatic payroll systems ended up actually double taxing their employees, which as we already know is illegal.
So my questions:
Has the employer withheld more from the employees paycheck then they are legally allowed to?
Could an employee sue their employer for wrongdoing, either for double taxing or withholding more then they are supposed to?
And yes, I am asking this question because it is happening to me, and my employer is being extremely unhelpful in trying to fix the problem.
I work for a small car hauling company in kentucky . For as long as it’s remember this company and other car hauling company’s charge their employees that haul cars a percentage of any damage turned in by individuals or if we haul cars for another car hauling company . If an employee has hauled a car and the customer complains about damage the company pays the damage and then charges the employee 25 % of the repair bill. My understanding is that this is against federal labor laws . Is this correct . None of us have signed any document slowing deductions from out pay but the continue to do this . Who would I have to contact to put a stop to this and or recoup any deductions made like this ?
I have an employee who stole from a customer, the property was returned immediately buy the customer isn’t happy, can I withhold the entire paycheck of said employee to help pay for his mistake
I am suspended from work while my employer conducts an investigation. Can they withhold my weekly paycheck for the pay period before my suspension began while I am on suspension?
My employer has said I stole something and is telling me he is withholding my money
I am a private contractor and lease my truck to a company, there is a paperwork snafu that the company is aware of and it is on there monitoring equipment. They want me to agree to something that did not happen and is erroneously reported by their faulty equipment and since I refused they are withholding payment for work already done.
Company is now trying to withold 2 weeks pay after working there 5 years. They are witholding all employees the same. Is this legal