Wage Deduction Authorization Agreement Explained
A Wage Deduction Authorization Agreement is an agreement which employees can enter into with their employer that allows the employer to deduct certain amounts from the employee’s paycheck. These agreements can be incredibly useful to employers, as they allow employers to collect their employees’ debts to the company as well as provide benefits to the employees.
Further, both the employer and employee must enter into the agreement voluntarily. The agreement cannot be an employment condition or requirement. According to the California Division of Labor Standards Enforcement ("DLSE") , it also must be signed by both parties at the time of the agreement.
These agreements are legally permitted and of general use by employers. They also help protect employers from future lawsuits and claims of unfair business practices when businesses take the funds owed to them from employees. The only restriction on the portion of the wages that can be deducted is that the deduction must result in a net six hundred dollars ($600) or more for the employee, otherwise the deduction cannot be made.
Wage Deduction Authorizations Must Comply with the Law
The enforceability of wage deduction authorization agreements hinges on the applicable law. Many states have statutes governing the enforceability of wage deduction authorization agreements. California and Virginia appear to have the most stringent requirements, requiring, among other things, that the agreement be presented to the employee in writing at the time of execution, that it be given to the employee a copy of the agreed-upon deal within 10 days of its execution, and that it be (depending on the type of deduction) served on the employee or sent to the state and/or the affected creditor.
In contrast, some states take a much more hands-off approach. For example, Texas does not have a statute governing wage deduction authorizations. Texas also generally does not require such authorization, but rather takes them as a condition of employment.
Further, the scope of permissible deductions is not limited to debts. In some states, an employer may make deductions for purposes other than debt repayment, such as retirement contributions and child support. Not all states require that such payments be made payable to a third party, though. In Tennessee, for example, an employer can make a deduction to a witness-governed plan, such as a 401(k) or health plan, for its own benefit if the employee agrees to the deduction.
Types of Wage Deductions
In addition to child support and other court ordered garnishments, wage deduction authorization agreements may be entered into with respect to the following types of deductions: health insurance premiums, retirement contributions, repayment of loans, payment of income taxes, and fringe benefits. In connection with fringe benefits in particular, employers may be authorized to deduct cash advances paid to employees for travel expenses, uniforms, relocation allowances, dues to labor organizations, or amounts owed for damage to company property, which normally would be the obligation of the employee. Deductions from wages may not be made unless such deductions are clearly explainable in the context of the employer and employee relationship, and documented in advance and in writing, to ensure compliance with the wage deduction laws and regulations.
How to Draft a Wage Deduction Authorization Agreement
Given the potential for liability where deductions from wages are not properly documented and agreed to by employees, employers would be well-advised to put an authorization agreement in place prior to making any such deductions from any employee’s pay. Below are some suggested minimum requirements that a dated, written authorization agreement should include:
• the specific amount of the deduction;
• the date of the deduction;
• a definition or explanation of the deduction;
• the name of the employee making the request;
• the name of the employee whose wages are to be paid to whom;
• the dollar amount of the deduction;
• the reason for the deduction; and
• the full name and address of the recipient of the wages involved, who shall also sign the agreement.
Sample language:
"It is understood that any salary or wages deducted as stated in this wage authorization is for my benefit, and represents money which I am presently owed as a result of my employment. Upon execution of this authorization as provided herein, I hereby authorize my supervisor to have my salary or wages deducted as described and pay such amount to my ___________ starting on ________________________. My signature herein shall act as a full waiver of any claim against the Company for the unauthorized payment of my salary or wages as specified herein."
Of course, an authorization agreement will not, of itself, shield an employer from liability should the employer fail to comply with applicable law in making a deduction, although it may be a factor in mitigating damages and/or establishing its intent to comply with the law if questioned by a court or other enforcement agency.
Employer Best Practices
When an employer and an employee or contingent worker agree that there will be a deduction from the employee’s or worker’s wages, the employer must ensure that the agreement meets the contractual and notice requirements of New Jersey law. Best practices include: Ask for consent in writing and maintain the documents in a secure location. Although an oral agreement to deduct employee wages or salary is enforceable, such an agreement may be difficult to prove in the event that there is a dispute. To avoid confusion over what deductions are authorized, employers should request that employees and contingent workers complete and sign a standard agreement authorizing the employer to make certain deductions. The agreement should be in writing for both parties’ protection and to ensure compliance with the notice and consent requirements discussed above. Because wage deduction requests may contain sensitive medical information, such as information about the employee’s or employee’s spouse’s medical condition, consent agreements with employees or independent contractors should be maintained in a secure location to protect the confidentiality of such information. Provide clear and comprehensive notice to employees regarding the implementation and enforcement of such agreements. Employers must make clear to their employees or independent contractors when they may be subject to a wage deduction and how , i.e., whether it is voluntary or mandatory. Employers should consider attaching a copy of the executed wage deduction agreement to the employee’s or independent contractor’s Handbook, or providing a copy of such dislocated policies in a standalone document. Within the Handbook, the covered areas could range from healthcare insurance contributions to pension contributions, to tax withholdings, to garnishments, to any other lawful deduction payments. Finally, if an employer chooses to have its employees authorize deductions to pay union dues, the employer should first secure a waiver of union membership from lumping such deductions together with union membership dues. Such a waiver exempts the employer from having the obligation to refer to the terms of the collective bargaining agreement, as the agreement previously provided consent to payroll deductions once the employee has authorized deductions for union dues. The focus of this article is on best practices used by employers to obtain the consent of employees prior to executing wage deductions. However, it is of equal importance that employees and independent contractors understand their obligations under the agreements. Employers should, therefore, also consider auditing employee and independent contractor files to ensure that these documents are properly executed and maintained.
Employee Rights and Other Considerations
Employees should do their research before entering into any wage deduction authorization agreement, and should carefully review the specific understandings set out in the agreement. Nothing in these agreements absolves the employer, however, from discrimination claims, and employees may enforce their rights under federal, state and local anti-discrimination laws in addition to their right to bring a claim under the EPPA. It is also important to recognize that these agreements are not irrevocable. Such an agreement may be revoked by the employee at any time, upon the employee’s notice to the employer.
Wage Deduction Disputes
Disputes between employers and employees over the existence or scope of a wage deduction authorization agreement are common. Employers tend to view them as a means of protecting against non-payment of debts, while employees may see them as a form of unfair labor practice that seek to constrain their future employment options. When a dispute arises, the good news is that there are several avenues for resolution that are available for both parties. For starters, neither party can go outside of the agreement’s terms. An employer can only exercise its right to withhold wages that is granted by the agreement. Conversely, an employee cannot get any relief from a dispute outside of the bounds of the agreement. That limitation notwithstanding, the range of resolution mechanisms is fairly vast. First, the employee can bring an action in California state court. Such lawsuits are typically initiated on a summary judgment motion where the court may find that the language of the agreement is either enforceable or unenforceable on its face. Often times, courts will issue a temporary restraining order on the agreement if the employee has shown a likelihood of success on the merits of his or her claim. Second, the employee may file for Public Employment Relations Board (PERB) relief in the rare case that the entity subject to the wage deduction is a public entity . If the employee is employed with a private employer, then the employees can file an unfair labor practice charge with the EEOC. Finally, the parties can always attempt to negotiate a resolution that is acceptable to both of them. Even if the parties do not already have a relationship, they can work through a third-party neutral to facilitate a negotiated settlement. Such settlement could involve a fresh start, i.e. the employer agreeing to not exercise its rights under the wage agreement and the employee calling off the dogs and no longer seeking to enforce the agreement. Alternatively, the parties could just compromise on the amount due and settle the underlying debt. Negotiating a settlement could save the time and expense of litigation or administrative appeals, and they don’t carry the bad karma that long-running litigation usually does. Regardless of the mechanism, wage deduction authorization agreements will likely play a major role in the 21st Century gig economy. Accordingly, we’re sure to see continuing disputes over the enforceability of these agreements as the economy evolves. Litigation policy is no substitute for drafting a comprehensive wage deduction authorization agreement, so employers would be smart to re-examine or create them going into the new year.