How Much Do I Deduct From My Employee's Paycheck – Part of being an employer is maintaining payroll. And chances are, you’ll have to deal with several types of payroll deductions, such as 401(k) or health insurance, when paying employees. But what happens when you have to deal with a deduction you don’t want, such as a correction for a payroll error? What can you deduct from the employee’s wages? Learn about legal vs. illegal payroll deductions so you don’t make a mistake that could cost you.
Are employers allowed to deduct money from wages for cash shortages? What about uniforms? There are a number of reasons you may want to deduct wages from employee wages. But, is it legal to do so?
How Much Do I Deduct From My Employee's Paycheck
Below are six reasons why you might want to deduct extra wages from an employee’s paycheck, and whether you can legally deduct them from an employee’s paycheck.
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A payroll error means you must collect additional wages from employees to correct the error.
Can employers deduct malpractice payments? Yes, employers can correct pay errors on future paychecks thanks to state laws and laws enforced by the Fair Labor Standards Act (FLSA).
If you made a mistake, own it and come up with a solution with your co-worker. The last thing you want to do is catch them off guard and collect more money from their paycheck when they least expect it.
In the case of overpayment, you must correct the problem. But, is it legal to do so? Short answer: yes. The long answer? State labor laws and the FLSA give employers the right to recover overtime. However, before you start a recovery, check your state’s laws. Some states only allow you to collect more payments based on the type of error you make (eg math errors).
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To avoid disgruntled employees or problems, you can discuss the mistake with your employee, work out a solution and get their consent.
Sometimes, your employee may owe you. For example, your employer may ask you for an advance. And at some point, you have to remember that money in some way or the other.
So, can you collect employee loans on paychecks? Yes. With an employer loan, such as a payday advance, you can withhold money from your employee’s wages to make repayments (even if it’s less than minimum wage). But like any other expense, it’s best to work out some sort of agreement with your employees
If you plan to give an employee an advance or borrow funds for any other reason, make sure you have a policy in place. To avoid legal problems, have the employee sign an agreement to repay the borrowed amount. In the agreement, include the date, the amount borrowed, and how and when employees must repay it.
Form W 2, Wage And Tax Statement For Hourly & Salary Workers
Keep in mind that some states may follow different laws. For example, a state may prohibit payroll deductions for loans or have other requirements. Check state laws before agreeing to loan money to an employee.
Let’s face it: mistakes happen. Your employees aren’t perfect, and neither are you. So, you can expect an employee to make a mistake from time to time (they’re only human!)
Under federal law, if an employee breaks an item or their cash register is short, you can charge them for these losses. However, you can only do so if the employee still earns minimum wage after the deduction.
Although federal law allows it, some states may have different rules about whether you can deduct shortfalls and breaks from an employee’s paycheck. For example, your state may require you to obtain the employee’s consent before deducting the loss. Also, some states may not allow you to deduct these losses.
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Before you unwittingly cash a paycheck, do your research to find out your state’s laws.
Depending on the type of your business, you may require employees to wear uniforms while you work. Sure, uniforms can be part of the job. But, are you allowed to deduct uniform fees from employees’ wages?
Federal law allows employers to deduct the cost of providing and maintaining uniforms. For example, the cost of cleaning and pressing an employee’s uniform can be deducted. But there is one small catch: the employee’s wages cannot be lower than the minimum wage after deductions.
If an employee is paid minimum wage, the employer cannot ask the employee to pay for a uniform through deductions or other means (including overtime).
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For some roles, an employee may need specific tools or equipment to perform the job. But, can you force employees to pay for these things and take it out of their paychecks? As with uniforms, the answer all depends on whether the employee meets the minimum wage requirements.
Under the FLSA, employers can charge employees for equipment and tools. However, the employer must pay for the equipment if it causes the employee’s earnings to fall below the minimum wage after expense deductions.
Now that we’ve gone through some of the possible scenarios and whether you can deduct them from an employee’s wages, let’s look at some types of illegal deductions from wages.
As an employer, it is important to know what you can and cannot deduct from employee wages. So, do your homework (and keep this article handy) to ensure you know illegal payroll deductions like the back of your hand.
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To briefly recap, let’s go over some legitimate payroll deductions. Remember that these deductions are legal under federal law. However, state laws may vary.
When it comes to an employer taking money out of a paycheck without consent, it all boils down to a few things:
In short, the rules regarding the deduction can vary depending on what it is and where you are. If you’re not sure whether or not something can be deducted from an employee’s wages, check your state’s FLSA laws.
Most deduction rules may vary from state to state. For example, breakdowns and cash shortages are considered illegal deductions in New York.
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Before you deduct anything from an employee’s wages, do your research to know what you can and cannot legally deduct. You can consult a small business attorney to help you. To ensure you have employees’ consent in advance for legal deductions (eg, uniforms), consider having employees sign an acknowledgment form when you hire them.
You’re covered. Running payroll with Patriot is a quick and easy three-step process, making it easy to pay employees and manage deductions. Try it free for 30 days today!
Get up and running with free payroll setup, and enjoy free expert support. Try our payroll software with a free, no-obligation 30-day trial. While most of us know that the Central Provident Fund (CPF) is a mandatory savings scheme, it is sometimes difficult to understand how it works. Easier for employees – For contractually employed Singaporeans and Permanent Residents (PRs), their CPF contributions are made on their behalf by their employers.
However, if you are an employer and are confused about the specifics of employee/employer CPF contributions, let us break it down for you.
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The amount you have to contribute depends on factors such as your employees’ salaries and their ages (explained below).
As an employer, if your employees earn more than $500 per month, you are entitled to recover the employee’s share of the mandatory CPF contributions.
All you have to do is deduct the amount from the employee’s salary after paying the CPF contribution for that month.
The following information summarizes which employees employers must pay CPF contributions to, as well as which payments and holidays the CPF contribution applies to. You can click on it to download it in a new tab.
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Yes. Generally, employees can receive CPF contributions if they are in the following types of employment (and if they meet the criteria mentioned above):
Generally, you have to make CPF contributions to your employees’ CPF accounts for the following types of payments:
“CPF Contribution Rate” means the method you use to calculate the CPF contribution you are required to make for your employees.
Average Wages (OW) is the wages earned by an employee through his job in 1 month. An example of this is the monthly salary you pay your employees.
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OW and AW are important as both have “ceilings” that limit the CPF contribution your employee can receive.
The OW limit is limited to $6,300. This means if an employee’s monthly salary is $8,500, his/her CPF contribution will only be calculated on an OW of $2,200. You do not need to pay CPF contribution. Remaining $2,500.
So if you give this particular employee a bonus of $45,000, his/her CPF contribution will only be calculated based on the AW of $42,000. You do not have to pay CPF contribution for the remaining $3,000.
If you work in the public sector, you need to determine whether your employees are pensioners (ie employees eligible for pension under the Pensions Act) before you calculate their CPF contributions.
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For all employees working in
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