(General information about wage overpayments: as noted in the article "The Texas Payday Law - Basic Issues", the U.S. Department of Labor considers wage advances to be in the same category as wage overpayments and loans, and thus finds no minimum wage problem with deductions from future wages to recoup such advances. However, the Texas Payday Law requires such deductions to be authorized in writing by the employee in order to be valid. The best practice is to cover this idea in a written policy, as illustrated by the example below, and as part of a wage deduction authorization agreement (see item 5 in the sample wage deduction authorization agreement in this book). This policy is of such importance that it should be separately signed by each employee, in addition to the signed written wage deduction authorization agreement. Keep a copy of the signed version of the policy for each employee's personnel file.)
Giving wage advances or loans to employees can be risky due to the possibility that an employee will be unable to repay the advance or loan, that the employee might quit before fully repaying the company, or that the company might find itself without proper documentation in the event that the employee files a wage claim alleging that the employer somehow did not follow the law when deducting repayments from the employee's wages.
Due to such risks, many companies choose not to advance wages or loan money to employees at all. For companies that decide to make such an advance or loan, it is very important to ensure that the employer complies with the legal requirements for deducting money from an employee's wages. As noted in the article "The Texas Payday Law - Basic Issues" in Part II of this book, deductions from wages for repaying wage advances or loans must be authorized by the employee in writing, and the deduction authorization must be as specific as possible, both as to the purpose for the deduction and the amount that will be deducted. In addition, the authorization must make it clear that the deduction will be taken from the employee's wages.
Since wage advances and loans are often for substantial amounts, double coverage is recommended for deduction authorizations. Thus, in addition to having a suitable item in the general wage deduction authorization agreement (see item 3 in the sample agreement on the following page), an employer should have each employee who receives a wage advance or loan from the company sign a separate agreement. Following is a sample agreement that illustrates how many employers handle such situations.
----- begin sample form -----
WAGE ADVANCE [LOAN REPAYMENT] AGREEMENT
I, [Employee Name], agree that on [Month and Day, Year], my employer, [Name of Company] gave me an advance of future wages payable in the amount of [$Dollars.Cents]. I understand and agree that I owe that amount in full to [Name of Company] and that I am responsible for repaying that wage advance in full. I further agree and give my authorization to [Name of Company] to deduct [$InstallmentAmountDollars.Cents] from each or any of my future paychecks until I have fully repaid [Name of Company] for the total amount of the wage advance that I have received today. Finally, I agree that if there is an unpaid balance remaining of the wage advance when I leave [Name of Company's] employment, [Name of Company] may deduct the remaining unpaid balance in full from my final paycheck, and that if such final deduction does not fully repay the unpaid balance of the wage advance, [Name of Company] may file an action in court or use any other remedy under the law to recover the unpaid balance from me.
________________________________ Signature of Employee Date
________________________________ Name of Company Representative Date
________________________________ Title of Company Representative
----- end sample form -----
[Caution: If an employee does not want to sign such an agreement, that is a good sign that the company should not give the advance.]
[Note: Because an employee who receives money from the company in the form of a wage advance or loan has effectively received wages in advance, minimum wage is not an issue with a deduction from pay for repayment of a wage advance or a loan. See DOL Field Operations Handbook Section 30c10(b) (online at https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/FOH_Ch30.pdf#page=18).]
[Note: See also: Wage Overpayments.]
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