When an employee loses, damages, or steals employer property, employers often wonder whether they can deduct the value of the lost, damaged, or stolen property from the employee’s wages. Minnesota and federal law place significant limitations on when employers can make such deductions.
Pursuant to Minn. Stat. § 181.79, no employer may deduct from an employee’s wages “for lost or stolen property, damage to property, or to recover any other claimed indebtedness” unless the following conditions are met:
- the loss has already occurred or the claimed indebtedness has arisen,
- the employee voluntarily authorizes the deduction, and
- the authorization is in writing.
Employers who violate § 181.79 may be liable for twice the amount of the improper deduction.
Section 181.79 does not apply where a collective bargaining agreement contains a contrary provision; to commissioned salespeople; or to employees who make a purchase or loan from the employer and who voluntarily agree in writing to deduction of the amount of the purchase or loan amount at regular intervals or upon termination of employment.
If an employee voluntarily agrees to a deduction in writing, the employer must make sure that the amount of the deduction complies with garnishment and minimum wage laws. Under § 181.79, employers may not deduct more from an employee’s wages than is permitted by Minnesota wage garnishment and execution law. The maximum percentage that may be garnished from an employee’s wages varies from employee to employee and depends in part on the reason for the garnishment—a greater percentage of wages may be garnished where the employee owes a child support judgment. Where there is no child support judgment, the maximum amount that can be garnished is generally 25 percent of the employee’s earnings after all legally-required deductions are made. Where there is a child support judgment, the maximum garnishment rate may be as high as 65 percent. Determining the maximum garnishment rate is a highly technical calculation, and a full review of Minnesota garnishment law should be conducted whenever wage garnishment is present.
Deductions for lost, stolen, or damaged employer property must also comply with the Minnesota Fair Labor Standards Act and the federal Fair Labor Standards Act. Employers should document all deductions made in an employee’s paycheck to make sure the employee receives minimum wage, and if necessary, make the deduction over several pay periods to ensure payment of minimum wage. Deductions for lost, stolen, or damaged employer property are not appropriate for employees who are exempt from federal Fair Labor Standards Act overtime requirements. The Department of Labor deems such deductions a violation of the salary basis requirement, with the result that the employee loses exempt status.
Arthur Chapman’s Employment Law team is ready to assist in your employer property and employee compensation questions to help prevent potential liability under state and federal wage laws.