Make Sure You Know What Can and What Can’t Be Deducted from an Employee’s Paycheck

Nearly all employees agree – they love getting that paycheck! So it’s good to know that Indiana has laws in place that protect workers’ rights to receive payment for work done. One area addressed by state law concerns what can and cannot be automatically deducted from a worker’s wages by the employer.

Lawful Payroll Deductions

Employers are permitted under some circumstances to deduct a certain portion of wages from a paycheck. Allowable deductions include:

  • insurance premiums,
  • charitable contributions,
  • labor union dues, and
  • the purchase price of the employing company’s stock, bonds, or securities.

In the case of permissible deductions, employees must provide and sign a written consent, employers must provide written agreement, and both parties must understand that these deductions may be stopped by the employee at any time with written notice. Deductions may also be made when an employee has been accidentally overpaid. However, the employee must be given 2 weeks’ notice prior to the deduction, and employers are limited on the amount they may deduct from each paycheck.

Prohibited  Payroll Deductions

Indiana State Law also specifically prohibits some particular types of deductions. For example, employers are not permitted to deduct the cost of required uniforms, tools, or other equipment necessary for employment. Employers can require that employees pay for these items; however, the cost may not be deducted from the employee’s paycheck. Employers are also expressly prohibited from deducting wages for cash shortages or for broken, lost, or damaged property.

To read more about Indiana law on this and other topics, you can visit the Indiana Gov site. If you have specific concerns about your own situation, contact Teresa Ray to discuss how The Payroll Department can help you manage your payroll operation and stay in compliance with applicable payroll law.

-Jessica of The Payroll Department Blog Team

Posted in: Churches and Non-Profit Employers, Operating a Small Business, Payroll, Payroll Processing, Rules, Regulations and Laws

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