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Can you make payroll deductions for missing company property?

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

by Michael W. Fox, Ogletree Deakins, Austin

Texas employers frequently face problems associated with retrieving company property from disgruntled former employees. Let's use a hypothetical scenario to answer questions on whether or when you can make payroll deductions for the missing property:
A disgruntled at-will employee decides to quit his nonunion job without notice. During the course of employment, however, he received valuable equipment from the company necessary for his job (a beeper, cell phone and other equipment). A week after he quits, the company realizes that this equipment is missing. The employee has not offered to return it.

Final paycheck

Q. What portion of the final paycheck must the company pay to this employee?

A. Under the Texas Payday Act, the employer is required to provide the final paycheck to this employee at the next regular pay time. This is true even though he may be in possession of valuable company property.
    Texas law states that to deduct any part of an employee’s wages, the worker must have executed a written authorization for the type of deduction made by the company. Otherwise, employers should not make such a deduction unless a court with jurisdiction over the employer authorizes the deduction or the company’s legal counsel determines that the deduction is allowed under state or federal law.
    Discuss with your attorney whether you should have employees sign a deduction authorization before you issue tools and equipment.

Terminated workers

Q. What if the employee is fired?

The same rules apply with respect to the deduction from this employee’s wages. Unless he has signed an authorization allowing for the deduction, the best policy is to not deduct.
    However, the employer is required to provide the final paycheck to a fired employee within six days after the discharge. The employer (1) may deliver this payment in person to the employee if he appears at the regular place of business during regular employment hours; (2) may deliver a check to the employee at an agreed time and place; (3) may send the check by registered mail to the employee if it would be received by the employee within the six-day window; or (4) may deliver the check in a reasonable manner designated by the employee in writing.

Penalties for withholdings

Q. What happens if the company does not pay the wages and there's no authorization for the deduction?

A. The employee has the right to seek payment of the wages through the Texas Workforce Commission. The employee has to approach the commission and request intervention. The commission then will send a document to the employer requesting its position on the issue, and asking whether there is any reason to withhold these wages. The commission will give a strict deadline to the employer within which to respond.
    After the commission receives the response, it will make a preliminary wage determination of whether the worker is entitled to the wages. Either party can appeal the commission’s decision by filing the proper paperwork within the time allowed. To judge appeals, the commission holds evidentiary hearings similar to those held for unemployment claims.
    The commission may assess a penalty of the amount of the wages owed to the employee. If the commission determines that the employer acted in bad faith by failing to pay the wages, it may assess an administrative penalty in an amount not to exceed the actual amount of wages in question or $1,000, whichever is less. The same penalty may be applied against an employee if he or she brings the claim in bad faith.

Michael W. Fox practices employment law at the Austin office of Ogletree Deakins. He has more than 30 years’ experience representing employers in court and designing employment-law policies. You can contact him at (512) 344-4711 or at Michael.Fox@Ogletreedeakins.com.

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