Pay Withholding

As an employer, have you ever thought about withholding wages from a current or terminated employee? If you answered yes, then there may be potential legal dangers that you are unaware of.

Do I have to pay a terminated employee, and if so, when?

According to the Department of Labor, the “last paycheck” law states that employers do not have to give a former employee their check immediately whether they are terminated or voluntarily resign. Regardless, an employer should pay the former employee for the previous work period at the next regular payday. Many states have more stringent “final paycheck” laws, so it is important to review the local statutes.

Employers may also encounter instances where the terminated worker is still in possession of company property. While the employer may want to withhold a paycheck until the equipment is returned, the FLSA mandates that all wages are due at the next regular payday, regardless of whether or not the property is returned. Again, some states have different requirements, so an employer may have the chance to recoup the cost of the company property that is in the employee’s possession.    

Can I withhold pay from a current employee?

Under both federal and state law, employers are required to pay their employees, and each employee must be paid the required minimum wage. For a number of reasons, employers may consider withholding pay from a current employee. Generally speaking, an employer cannot withhold pay from an employee without his or her consent, except in the case of required withholdings, such as FICA. Moreover, withholding wages as means of punishment is against the law. An employee is owed his or her full paycheck even if the employee violates company policy. If an employee is overpaid, the employer is allowed to recoup the overpayment from the employee under the FLSA, as the Department of Labor considers overpayment a “loan or advance of wages.” Some states place restrictions on such recoupment, however, such as time limitations or the requirement for written authorization from the employee.

Withholding pay from current or former employees can create legal problems for an employer. It is always best practice for employers to review both federal and relevant state and local laws to ensure the desired withholding complies with all governing laws. If you have questions, consult an attorney.