The Washington Department of Labor and Industries has revised and approved new regulations addressing the deduction of wages from an employee's paycheck both during and at the end of the employment relationship. It has also approved new regulations regarding the adjustments or deductions an employer may make for the overpayment of wages. The regulations are now in effect. While the changes are substantial, they provide improved guidance on when and how employers may deduct wages.
Here is a brief summary of the regulations and what they provide:
A. WAC 296-126-028: Deductions That Can Be Taken During the Employment Relationship.
1. Deductions That Require No Advance or Written Agreement With the Employee.
An employer may deduct any portion of the employee's wages without an advance agreement or permission from the employee, if the deduction is:
a. Required by state or federal law;
b. For medical services paid for by the employer (not related to payments made for workers’ compensation); or
c. To satisfy a court order, judgment, wage attachment, trustee process, bankruptcy proceeding, or payroll deduction noticed for child-support payments.
See WAC 296-126-028(1). These same deductions may also be made from an employee's final paycheck. See WAC 296-126-025(1). In both instances, the deductions may reduce the employee's final gross wages below the state minimum wage.
2. Deductions That Require Advance Written Agreement With the Employee.
If the employer has received an advance written authorization from the employee agreeing to a specific deduction, the employer may deduct wages from the employee's paycheck as long as the deduction is for the benefit of the employee. WAC 296-126-028(2). The deduction may reduce the employee's gross wages below the state minimum wage.
Deductions that benefit the employee may include the employee's purchase of goods or services from the employer, a loan by the employer to the employee, the purchase of employee benefits (medical, dental, vision, etc.), and payments to a creditor of the employee. Notably, reasonable interest on an employer loan or credit to an employee is not considered to be of financial benefit to the employer. See WAC 296-126-028(3). Therefore, reasonable interest can be deducted from an employee's wages. Similarly, the employer may not derive any financial profit or benefit from the deductions made. See WAC 296-126-028(4).
B. WAC 296-126-025: Deductions That Can Be Taken From the Employee's Final Paycheck Only.
Unlike the deductions provided by WAC 296-126-028, the deductions provided by WAC 296-126-025 can be taken from an employee's final paycheck only. Thus, the deductions cannot be taken from an employee's wages during the employment relationship.
1. Deductions That Require Advance and Specific Oral or Written Agreement With the Employee.
While this rule is very similar to the rule provided by WAC 296-126-028(2) (cited above), there is one important difference: the employer can make the deductions under WAC 296-126-025 without a written agreement from the employee. As long as the employer has made an oral agreement with the employee agreeing to the specific deduction in advance, the employer may deduct wages from the employee's final paycheck, as long as the deduction is for:
a. The payment of a benefit plan (i.e., pension, medical, dental, or other employee-approved benefits plan); or
b. A payment to a creditor or third party, as long as it was for the benefit of the employee. An employer can be considered a creditor or a third party.
See WAC 296-126-025(2). The deductions can be made even if they reduce the employee's final gross wages below the state minimum wage.
Under this regulation, the employer may deduct the balance owed on a loan that the employer provided to the employee as long as the agreement (written or oral) to do so was made in advance and specifically provided for the deduction. Similarly, deductions for a 401“k” plan or other monthly medical premiums may be taken from an employee's final paycheck.
2. Deductions That Can Be Taken Only if the Incident at Issue Occurred During the Final Pay Period.
Each deduction identified below can be made only when (1) the incident triggering the deduction occurs in the employee's final pay period and (2) the deduction does not reduce the employee's final gross wages below the state minimum wage. As long as these two elements are satisfied, deductions may be taken from an employee's final paycheck when:
a. The employee accepted a bad check or credit card in violation of procedures previously made known to the employee.
b. A cash register had a cash shortage and it can be shown that the employee had access to the register and participated in the cash accounting of the register at both the beginning and the end of the shift.
c. There was a cash shortage, including a customer walkout, breakage, or loss of equipment, if the employer can show that these incidents were caused by a dishonest or willful act of the employee.
d. The employee committed theft, but only if it can be shown that the employee's intent was to deprive and that the employer completed and filed a police report.
C. WAC 296-126-030: Employers Must Seek Reimbursement for Overpaid Wages Within 90 Days of the Overpayment.
Employers are now limited in the means and time in which they may seek reimbursement of overpaid wages from employees. An employer now has only 90 days from the initial overpayment to detect it and implement a plan with the employee to collect the overpaid wages. WAC 296-126-030(4). If the overpayment is not detected before the 90-day period is up, the employer is prohibited from adjusting the employee's current or future wages to recoup the overpayment.
An overpayment occurs when the employer pays the employee for (1) more than the agreed-upon wage rate, or (2) more than the hours actually worked. WAC 296-126-030(1). An employer may recover overpayment from an employee's paycheck as long as the overpayment was "infrequent and inadvertent." "Infrequent" is defined as "rarely, not occurring regularly, or not showing a pattern." "Inadvertent" is defined as applying to an employer "error that was accidental, unintentional, or not deliberately done." WAC 296-126-030(4).
If a wage overpayment is discovered within the 90-day period, the employer must provide advance written notice to the employee before an adjustment to the employee's paycheck is made. WAC 296-126-030(6). The notice must include the terms under which the overpayment will be recovered (i.e., one adjustment or a series of adjustments) and documentation supporting the overpayment.
The Washington Department of Labor and Industries has provided helpful examples of wage deductions and adjustments that are permitted and prohibited by the regulations within the text of each regulation. To see these examples and review the regulations, please see:
WAC 296-126-028: http://apps.leg.wa.gov/WAC/default.aspx?cite=296-126-028
WAC 296-126-030: http://apps.leg.wa.gov/WAC/default.aspx?cite=296-126-030