What you need to know about paycheck withholding
Wage withholding, or the act of an employer holding back or not providing a paycheck to a worker, is typically done due to some perceived dispute between an employer and employee, such as a disagreement over overtime worked, amount of hours worked, written agreements over compensation or even garnishments unrelated to the employer. Though withholding an employee paycheck may not be entirely illegal, the act can often be a violation of wage and hour laws in that it fails to compensate the employee when their services are acquired. This leads to unpaid wages and often, back due amounts that employers are required to pay , with additional interest and fees added on top. It is the assumption of an employer that wages will be given when due and withholding any amount of compensation due can subject an employer to potential legal action. There are other circumstances in which paycheck withholding may be necessary, but almost all instances of withholding will have to be legally justified and properly documented. If necessary documents to support a withheld paycheck do not exist, the employer will likely be asked to pay the amount due as well as potential penalties for damages to the employee and their wages. It is important to understand the legal possibilities of withholding pay and how an employer should calculate a payment, what deductions may be necessary or come into play, and when a paycheck may be withheld without adverse consequence of any sort.
Withholding of pay at the federal level
The Fair Labor Standards Act (FLSA) was enacted in 1938 and has been amended many times since to protect the rights of employees. One of the protections of the FLSA is the non-pay withholding of a check. Withholding a paycheck violates the FLSA. Under the FLSA, withholding a paycheck is a violation of the employer’s duties and triggers liability.
There are a few limited exceptions. The first exception is permitted when an employee has absences that are unpaid. In this situation, the employer is not required to pay for unworked pay periods. Some employers withhold paychecks when the employee leaves employment and takes unpaid vacation or personal time. Another example of withholding paychecks involves salary reductions, particularly those that are related to disciplinary actions or to correct errors in pay (to collect insufficient funds from the prior pay period).
A more broad exception to the FLSA arises under the Public Contracting Statutes like the Walsh-Healey Act, Davis-Bacon Act or DBRA, Service Contract Act and related statutes. However, the contracts for these works generally need to include some type of express withholding requirement. In essence, withholding is a condition of employment, which is allowed under these statutes. However, if an employee is employed by two different companies, the parent or subsidiary is within their rights for withholding wages on some agreements, but not allowed under others.
I am often presented with factual situations where an employer seeks to ‘penalize’ an employee for their decision to either engage in conduct the employer believes is detrimental to the company or when the employee is leaving don’t get their full paycheck. The Virgin Islands Department of Labor essentially defined discharge as an act that terminates the employee’s relationship. However, as noted above, the question may be whether the withholding was related to an Express condition of employment under the contract between the parties.
Laws regarding paycheck withholding at the state level
The rules regarding paycheck withholding can vary from state to state. The states below each have specific provisions that further dictate the actions that can be taken by an employer regarding missing paychecks.
California – If an employer willfully fails to pay wages to an employee, they may be liable for a penalty in the amount of one day’s worth of pay for every day the employee was not paid. This is in addition to the actual unpaid wages owed and applies to all wages due the employee. Cal Lab Code § 558.
Florida – Employers who willfully refuse to pay even if not legitimately disputing the claim of owed wages can be punished with fines of up to $1,000 for each violation. Fla Stat. § 448.110.
Georgia – Employers who withhold a paycheck in bad faith or as an act of revenge might face liability for emotional distress as well as punitive harms. See Phillips v. Mathews, 326 F Supp 2d 1326 (ND GA 2003).
Texas – If an employer refuses to provide payment of wages, the employee might be able to file a lien against the employer for wages not paid per Texas law. TEX. LAB. CODE ANN. § 52.026.
California – If an employer pays wages late, they may be liable for an additional 0.5% of the unpaid balance for each day the payment was late. See Cal. Lab. Code § 204; Cal. Code Regs. Tit. 8, § 13520.
In order to find out what laws are applicable to your situation, speak to a lawyer who is familiar with wage and harassment laws.
Laws and common reasons used by employers for check withholding
An employer may have a legitimate reason for withholding a paycheck, such as repayment of a pay advance or the return of company property, and employers may be within their legal rights to withhold a paycheck in those circumstances. For example, if an employee owes the employer $400 because the company offered an advance on her paycheck and the employee accepted her pay early through direct deposit into her bank account, then the company may have the legal right to offset $400 from an employee’s next paycheck to recover the loss. Likewise, if an employee fails to return company property at the conclusion of her employment, such as a company-issued laptop, the employer may have a legal right to withhold the laptop’s value from the employee’s paycheck.
Employers may not unlawfully take deductions from employees’ paychecks for amounts the employer feels are owed to the company. For example, an employee can’t owe a $50 gas card to the company, unless this is specifically authorized by the employee in writing. The employer has no legally-supported right to take a $50 deduction from the next paycheck to get this money back from the employee. Doing so violates federal and state wage and hour laws.
Legal rights of employees regarding paycheck withholding and remedies available
Employees who find their paychecks wrongfully withheld have several potential courses of action. Of course, it is best to start with simple and straightforward negotiations directly with the employer. As previously mentioned, many employees mistake what is obviously an oversight by the employer (which can result in even a couple of weeks delinquency in payment), for a withholding. Occasionally issues arise because of confusion over a garnishment, withholding order or other legitimate deduction (beyond what is owed to the company) from pay. If the issue is one of oversight or confusion, the parties usually can work it out quickly and avoid the need for filing complaints and otherwise dragging out what should be a simple matter .
However, if there is a genuine dispute or refusal to pay, even one that is unreasonable or done in bad faith, the employee has a variety of options, including calling for negotiation, contacting the Department of Labor, or pursuing any number of legal venues. Some of these options are overlapping. For example, if the "withholding" ultimately results in a non-payment of wages, then any employee may file charges with the United States Department of Labor and/or wherever else the employee’s primary place of employment is located. Such an employee may also file a lawsuit in state court for whatever damages are appropriate, though the time is usually too short to file suit under the Fair Labor Standards Act.
Ways to avoid problems with paycheck withholding on your own
To prevent issues with paycheck withholding, it is important for employers to communicate clearly and openly with employees about all relevant policies. In some professions, whether or not someone is considered an employee depends on a number of factors and those who unfortunately misclassify their employees may withold wages improperly. Contracts should always be read over carefully. If a paycheck is held improperly, there are sometimes legal mechanisms to remedy it. If a paycheck is withheld over a contract issue like a non-compete or failure to return property, it is advised that you speak with a qualified attorney and understand what the laws in your state allow.
Common types of cases and examples
Considerable case law exists addressing the prohibited act of an employer withholding wages from employees, beyond those described above. To supplement that discussion, there are several circumstances that merit review here in connection with penalties for improper withholding of paychecks.
In Huber v. Cook County Sheriff’s Department, the plaintiff, a Cook County Sheriff’s employee, wanted reimbursement for 153 hours of compensatory time. Huber presented his request for payment to payroll staff, who initiated action for the accountants to prepare the checks. However, the payroll staff mistakenly assigned the request a "C" rather than "S" code, causing it to be classified as an "overpayment," which entitled Huber to institute a challenge and, ultimately, receive the overpayment before being reimbursed.
When Huber learned of the overpayment, he decided to resign. The Sheriff’s Office accepted the resignation and provided Huber an exit checklist to complete prior to obtaining any outstanding funds. The checklist required Huber to return all property belonging to the Sheriff’s office, as well as list amounts owed to the office. The Sheriff’s Office informed Huber that the amount owed would be deducted from his final paycheck. A separation checklist was provided with a line item showing what Huber would receive upon completion of the checklist. Among other items, the separation checklist indicated that as of December 10, 2015, Huber would be owed $870.29.
The Sheriff’s Office later determined the amount on the separation checklist was inaccurate, and obtained authorization to offset the overpaid amount from Huber’s unpaid wages . In January 2016, the Sheriff’s Office notified Huber that his paycheck would be withheld to offset the amount owed to the Sheriff’s Office. Huber filed a complaint with the Illinois Department of Labor ("IDOL") in March 2016, asserting a violation of the Wage Payment and Collection Act ("IWPCA") and arguing that the Sheriff’s Office improperly withheld his paycheck.
Under the IWPCA, an employer is prohibited from making any deduction from compensation earned by an employee except as authorized by statute or when the deduction is made for benefits the employee has failed to pay. An hostile employer defense is not available to an employer charged with an IWPCA violation, even where an employee voluntarily resigns and refuses to turn over property.
The IDOL found that the Sheriff’s Office was liable under the IWPCA, and a Cook County Circuit Court confirmed that finding. The court awarded Huber, who resided in Cook County, damages in the amount of $4,350, plus attorney’s fees and costs. Although the award against the Sheriff’s Office totaled $7,700, the maximum award against Cook County, the sheriff of Cook County was not entitled to qualified immunity on the state law claim because there was a clearly established law prohibiting the withholding.
The employer’s rights and defenses in regard to withheld paychecks hinge on whether any items withheld are specifically authorized by statute (i.e., taxes and garnishments) or included in an employment policy. Careful drafting of employment policies and state-specific policies is critical to avoid legal entanglements.
