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News | Jun 09, 2013

Employers’ Ability to Make Deductions to Employees’ Pay is Very Limited Under State Law

Employers often assume that they can make deductions from their employees’ compensation without any ramifications.  However, many states such as Pennsylvania, New Jersey, and New York, possess laws prohibiting deductions from employees’ compensation with the exception of very specific and limited circumstances.  See, e.g., 43 P.S. § 260.3; 34 Pa. Code § 9.1 (Pennsylvania); N.J.Stat.Ann. §34:11-4.4 (New Jersey); N.Y.Lab.Law §193 (New York); Conn.Gen.Stat. §31-71e (Connecticut); Del.Code.Ann. §1103(a) (Delaware); Ill.Admin.Code §300.720 (Illinois); Ind.Code.Ann. §22-2-6-1 (Indiana); Mich.Comp.Laws §408.477(1) (Michigan); N.H.Rev.Stat.Ann ch. 275, §48 (New Hampshire); and R.I.Gen.Laws § 28-14-10 (Rhode Island); accord Camara v. Attorney General, 458 Mass. 756, 763 (2011) (listing limited types of permissible deductions from compensation). These statutes are strictly interpreted.  Specifically, under the Pennsylvania Wage Payment and Collection Law (“PWPCL”), 43 P.S. §§ 260.1, et seq., permissible deductions are limited to those specifically identified in 34 Pa. Code § 9.1(1)-(12).  Many of these concern “typical” deductions such as taxes, contributions to pension plans and donations to charitable organizations.  However, while the PWPCL does have a catchall provision for “other deductions,” see 34 Pa. Code § 9.1(13), an employer must have both (i) an agreement in writing with the employee authorizing the deduction and (ii) approval by the Pennsylvania Department of Labor and Industry, to fit within its confines.  See Ressler v. Jones Motor Co., Inc., 487 A.2d 424 (Pa. Super. 1985).  Otherwise, the deduction is illegal and the employer can face monetary penalties for each deduction.  Courts also interpret state regulations describing the types of legal deductions in a very limited fashion.  See, e.g., Watson v. Prestige Delivery Systems, Inc., et al., GD-09-15746, slip op. (Allegheny Cty. Feb 7, 2013).

In addition, employers will often make otherwise illegal deductions because they think that these state laws do not apply to there employees because they have classified them as “independent contractors.”  However, often this classification is improper based on the nature of their relationship with their employees and opens the employer for potential liability.

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