The simple act of making wage deductions can create many problems for unwary companies. For example, suppose a company is confronted with any of the following scenarios:
- Employee has stolen money from the cash drawer and has been fired. The company owes the employee his or her final paycheck and wants to deduct the stolen funds.
- Company discovers that the payroll department has committed a serious error resulting in numerous overpayments to an employee and would like to rectify the problem by deducting from future wages.
- Employee has made numerous unauthorized purchases on the company credit card prior to leaving his or her employment. The company is looking for a way to recoup the money.
- Employee is responsible for maintaining tools and equipment issued by the company. Employee has resigned and returned these items in a damaged condition.
In all of these situations, it is clear that the employee is indebted to the company. However, companies do not have an unlimited right to make deductions from the employee’s paycheck to satisfy the debt. If deductions are improperly made, a company can be liable for penalties under state law equal to the amount of the deduction or even double that amount if the violation is found to be willful. These penalties along with court costs and attorneys fees may be awarded under the Nebraska Wage Payment and Collection Act.
State laws vary on the company’s right to make deductions. In many states, as in Nebraska, the issue is governed by statute. Under the Nebraska statute, a company may only “deduct, withhold, or divert a portion of an employee’s wages” when the company is required to do so by state or federal law, by order of the court or if the company “has a written agreement with the employee to deduct, withhold, or divert.” Neb.Rev.Stat. § 48-1230. Even in cases of theft, a company is not authorized to make deductions under Nebraska law without a written authorization from the employee. Here are some tips on handling deductions in Nebraska:
- Before any amount is deducted from an employee’s compensation, the employee should sign a written document expressly authorizing the deduction. It is recommended that the authorization form should identify the reason for the deduction and the amount that will be withheld. It is always a good idea to have legal counsel draft or review the authorization, especially if the employee is performing services outside of the state of Nebraska.
- Companies may require an employee to sign the authorization upon commencement of employment. Such an authorization can be helpful whenever company property (such as tools, equipment or other items) are transferred to the employee with the expectation that they will be returned in similar condition.
- For purposes of complying with federal minimum wage laws, the company should avoid a deduction which results in the employee earning less than minimum wage for that pay period.