As HR professionals implementing performance management plans we find ourselves preaching all the time about establishing a culture of accountability. Employees must be held accountable to their goals and responsible for their actions. Sometimes, however, even well intentioned attempts at this accountability can go astray if there is not a clear understanding of federal and state law in regard to wages and deductions.
I am speaking of the common practice of many employers to deduct the cost of damaged or lost goods and equipment from the wages of employees in an effort to establish a culture of accountability. I am actually on board with this, to an extent. I think that if an employer provides a company paid cell phone to an employee and that employee loses that phone, that employee should have to pay for the replacement.
If an employee drops his company paid laptop while transporting it without using his company provided computer bag, he should have to pay for repairs. However, if an employee is in a car accident in the company vehicle, I’m not convinced she should have to pay the insurance deductible. It’s up to management to establish where the line must be drawn to determine whether or not an employee has been negligent in the care of the product, or whether an accident has truly happened. Regardless, that is for the employer to decide and specify in the policy, if they choose to have one, and to apply equally, consistently, and justly.
In order to write and apply the performance management policy in such a fashion, however, employers must know and understand the parameters within the policy. For instance, consider these situations:
- Employers may not make any deductions from an employee’s paycheck without the employee’s written authorization
- With respect to non-exempt employees, an employer may not require an employee to pay for an expense if doing so reduces the employee’s pay below minimum wage (so, if an employee earns minimum wage, you can never deduct for the expense of loss or damages)
- With respect to exempt employees, the DOL has issued an opinion that such deductions risk their exempt status under the FLSA. They ruled that such a deduction is not allowed because FLSA does not allow deductions in compensation due to the quality of work performed. They also ruled that employers cannot require employees to make an out of pocket reimbursement (versus payroll deduction) because this would still prevent them from receiving their predetermined salary “free and clear”.
- Many states have adopted stricter rules, including clearly forbidding deduction of this nature altogether. In some states the employee must acknowledge in writing that they assume financial responsibility for the item. Others such as Virginia, completely forbid it, and California will only permit it if the employer can prove that the employee acted dishonestly, willfully, and in a grossly negligent manner. So, if an employer operates in multiple states, they will need to know the regulations in those states, and then determine if they are willing to adopt a policy that cannot be applied uniformly across their organization.
Now back to establishing that culture of accountability. Can the employee be disciplined or fired for damage or loss of company property? Yes, he or she can. If there is an employee who has a history of not being responsible with equipment, his or her manager should definitely take action through counseling and discipline, including no longer having the convenience of having the company provided tool.
There is certainly a place for policies that require employees to be financially responsible for their company issued equipment. Just be certain that you are aware of the rules and the limitations before you implement one, or else you might find that the equipment in question was not worth the fines and damages it cost in the long run.