Employees incur debts to their employers for a variety of reasons. Ideally, the employer could deduct that money directly from the employee's paycheck. However, the North Carolina Wage and Hour Act, ("Act"), sets forth specific rules as to how, when, and how much an employer can deduct.
Most importantly, an employer may withhold a portion of an employee's wages only when (a) it is required to do so by law, or (b) it has a written authorization from the employee. All authorizations must be: in writing, signed on or before the pay period for which the deduction is being made, show the date of signing, and state the reason for the deduction. (NC GS § 95-25.8.)
There are Two Types of Written Authorizations
- Specific Authorizations. A specific authorization is one where the amount or rate of the deduction is known. It must state the amount or rate of the deduction and the number of paychecks or length of time for which it authorizes the deduction (i.e., $50 per paycheck for the next five months). If the withholding is for the convenience of the employee, he or she must be given a reasonable opportunity to withdraw the authorization.
- Blanket Authorizations. A blanket authorization is used when the amount of the proposed deduction is not agreed upon in advance. Once a blanket authorization is made, the employee must be given a reasonable opportunity, not less than three days, to withdraw it. Before using a blanket authorization, the employer must give the employee advance notice of the specific amount. If the deduction is for cash shortages, inventory losses, property damages, etc., advance notice must be at least seven days; however, when a separation occurs, the seven-day notice is not required and an employer need only give 24-hours notice.
Limitations on Deductions
Once an employer is properly authorized to deduct wages from an employee's paycheck, the amount that may be deducted is also limited. Deductions for cash shortages, inventory shortages, loss or damage to an employer’s property and deposits by the employee for the use of the employer's property may not reduce the wages for the pay period below:
- 85% of the minimum and overtime wages required under the North Carolina Wage and Hour Act for employees covered by the Act;
- the minimum and overtime wages required under the Fair Labor Standards Act ("FLSA") for employees covered by the FLSA; or
- An amount equivalent to the amount of minimum and overtime wages which would be required under the North Carolina Wage and Hour Act for employees covered by neither the Act, nor the FLSA.
- Nothing in the Act prohibits an employee from voluntarily repaying any amount owed.
- The authorization requirements of the Act do not apply to wage advances, loans and overpayments of wages. These are considered prepayment of wages and can automatically be deducted without authorization. In addition, the authorization requirements do not apply if criminal process has been issued against an employee, or if he or she has been indicted or arrested due to a cash shortage, inventory shortage, or damage to property. However, if the employee is later found not guilty, you must reimburse the money that was deducted, so it is best to get the authorization if you can.
Employer Remedies
So, what do you do if you cannot recover what an employee owes you directly from his paycheck? You take him to court. Nothing in the Act prohibits an employer from filing a lawsuit to recover any of the money owed. (NC GS § 95-25.11.) This will typically be done in magistrate court and can be handled without a lawyer. Still, it is a hassle and often the employee is judgment-proof. The best way to protect yourself is to have a carefully drafted authorization and follow the Act's procedures to ensure recovery.