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Payroll & Taxes

Dollars and Sense: Paycheck Deductions and How To Stay Compliant

Cymone Carlson, SHRM-SCP
by Cymone Carlson, SHRM-SCP on March 30, 2023

When it comes to paychecks, we all know that Uncle Sam will get his cut in the form of federal/state income tax, social security, and Medicare. But what about other types of payroll deductions? What is allowed and what steps, if any, are required, before you can deduct from an employee’s paycheck?

Mandatory Withholdings

Mandatory withholdings, such as federal and state income taxes mentioned above are just that: mandatory. Some states, such as California and New York also have required withholdings for statutory benefits, such as paid family leave. Mandatory withholdings generally do not require any authorization from the employee although some states may require that you notify employees of state-required withholdings by way of required posters or notices.


At times, you may receive a garnishment notice regarding an employee. This is typically in the form of a state form or court document stating that an employee’s wages must be garnished for a certain reason, such as child support or money owed on an unpaid debt. These documents will typically provide information on how much must be withheld. While you do not need to get an employee’s authorization to deduct for garnishments, it is a good idea to give your employee a heads up about the upcoming deductions, although they will most likely be aware of the impending garnishment already.


Other types of deductions are benefits that an employee voluntarily opts into such as health insurance, company-provided short-term disability, and retirement plans. These types of deductions require authorization from the employee, which is accomplished when an employee signs up for benefits at hire, during open enrollment, or any other times they are permitted to adjust benefit elections.

Uniforms and Tools

There may also be situations where an employer deducts for items necessary for the employee to work at the company, such as uniforms or tools. This is where an employer wants to start exercising a bit more caution before deducting from an employee’s paycheck. For these types of items that are for the benefit of the company, you would not be permitted to deduct in a way that would bring an employee below minimum wage. There are also some states that have very strict requirements as to whether you can deduct for these items in the first place or if you will need to have a signed authorization from the employee before being able to start these deductions.

Loss, Damage, and Company Property Not Returned at Termination

The final group to be discussed here (although there are other, less common deductions) would be deductions associated with loss, breakage, or a failure to return company property. As a manager, you will likely have a situation where an employee does not return company property after being terminated or the employee damages a piece of property due to negligence. When charging an employee with the cost of the lost or damaged property, this is the type of deduction where an employer may run into the most pitfalls.

For the most part, federal law is silent on whether employers can deduct for employee negligence, malice, theft, or failure to return property, leaving employers with the main guidance being not to deduct below minimum wage. However, most states have specific regulations about whether these deductions are allowed, under what circumstances, if written authorization is required, and what must be included in that authorization. For instance, Texas Payday Law states that an employer must have written authorization from an employee that states the specific purpose of the deductions, a reasonable expectation of the amount that will be withheld, a clear indication that the deduction is to be withheld from wages, and the employee’s authorizing signature. In California, deductions for breakage or loss of equipment are generally prohibited unless the employee acted dishonestly or was grossly negligent, which would require both written authorization to make the deduction and proof in case the employee argued that these conditions were not met.

While some states are as silent on deductions as federal law, such as Georgia, it is still a good idea to collect a written authorization from employees prior to deducting from an employee’s paycheck to avoid a claim of unlawfully withheld wages. If your state allows it, a blanket authorization may be a great solution; when assigning company property to employees, such as laptops, cell phones, and keys, provide a document listing these items along with the replacement cost should they be lost, damaged, or not returned and have the employee sign the document acknowledging the repercussions should the items not be returned (or become damaged) prior to allowing them to begin using them. This way, you are not trying to get a disgruntled, possibly terminated employee to sign an authorization after the fact.

If you are unsure if you are making deductions correctly or would like to put together a federal, state, or locally compliant policy on deductions, reach out to your HR Consultant to help develop a plan to get your workforce back on track. Not yet a FrankCrum client? Contact us today to gain access to a wealth of information and guidance!

Cymone Carlson, SHRM-SCP
Cymone Carlson, SHRM-SCP

Cymone Carlson is a FrankAdvice Sr. Human Resources Consultant. She is a Senior Certified Professional in Human Resources (SHRM-SCP) and holds a Master’s degree from the University of Florida. Cymone has firsthand HR experience working within nonprofits, manufacturing, distribution, healthcare, hospitality, and government contracts.