The question of what deductions can be permissibly taken from employee earnings presents a legal minefield for many employers. Often, this issue arises within the context of a broader dispute as to whether workers have been properly classified as employees or “independent contractors.” Massachusetts has one of the strictest tests in the country for lawfully classifying workers as independent contractors. However, I continue to see cases of improper wage deductions being taken from both misclassified “contractors” and recognized company employees.
The general test is that an employer may not transfer its ordinary costs of doing business — in other words, its overhead — to an employee. Replacing stolen and damaged equipment, insuring against the risk of personal injury to workers and third parties, and the costs of complying with state or federal regulatory requirements are among those that must be borne by employers. Here are five specific deductions from employee earnings that are nearly certain to result in future claims for unpaid wages:
1. Workers’ Compensation/CGL/Automotive Liability: perhaps the most obvious on this list, many companies still attempt to pass the costs of insuring against work-related injuries on to their employees. Both the Massachusetts Supreme Judicial Court and the First Circuit Court of Appeals have explicitly rejected such cost-shifting schemes. Delivery and transportation companies are also barred from assessing drivers a liquidated “penalty” for any accidents in which they are involved, as these are usually just veiled attempts to offset the increase of insurance premiums.
2. Deductions to Offset Cashier Shortages, Inventory Shortages and Dishonored Checks. The overriding goal of any such deduction is to offset risk and liability associated with employee negligence. Replace bad employees – don’t dock their pay for hours worked, no matter how productive or unproductive they have proven.
3. Pre-hiring medical screening or drug testing. When required as a condition of employment, these costs must be borne by employers. This is regulated by statute in Massachusetts, G.L. c. 149 § 159B.
4. Maintenance and replacement costs of company owned-equipment. So long as the equipment being repaired, maintained or replaced is company-owned, these deductions are impermissible, regardless of whether (a) the damage was caused by employee negligence, or (b) a specific employee is the only person to use the equipment in question from day-to-day.
5. Deductions for meals and lodging may not reduce the employee’s hourly wage below the state minimum wage. While not entirely impermissible, employers must ensure that weekly or bi-weekly deductions for employee uniforms and lodging do not reduce the applicable hourly wage received below the Massachusetts minimum wage (set to increase to $11.00 per hour by 2017).