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Don’t deduct training costs from ex-Employee’s pay

by on
in Employment Law,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

Q. As part of our new employees' noncompete contracts, we've started including a clause that requires employees to repay the company (through payroll deduction) for training costs if they quit or are fired within one year. Are we OK legally? —S.M., Kentucky

A. Here's a good rule of thumb for all employers: If you think a payroll deduction sounds illegal, it probably is. Payroll deductions shouldn't be viewed as a substitute for discipline. And they certainly shouldn't be used to “stick it” to departing employees.

It's a pretty safe bet that this payroll deduction plan would violate federal and state wage-and-hour laws. As a practical matter, whenever you make atypical payroll deductions from an employee's final pay, you're inviting trouble.

One more thought to chew on: Why do you have all new employees sign noncompete agreements? Those agreements are usually appropriate only for managers, sales reps and other high-level personnel with access to confidential information.

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