Deductions for Loans or Advances

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Guidelines Surrounding Deductions for Loans or Advances

If a debt is owed by an employee to the employer, only deductions for advances and loans are permitted from minimum wage. In certain situations, an employer may pay a third party per a request by the employee. This can be considered equivalent to an advance against salary or a loan to the employee. Deductions to recoup the loan amount are permitted under the Fair Labor Standards Act (FLSA).

If the employee is indebted directly to the employer, different rules apply. The general rule in this case is that an employer is not allowed to make impermissible deductions based on a “voluntary” assignment of wages. That is because the superior bargaining power of the employer makes the voluntary assignment of wages suspect. Even if the employer and employee agree, this protection may not be waived under the FLSA.

In situations in which a deduction is used to pay employee third party creditors (at the direction of the employee and with his or her consent), an exception is applicable. The exception is applicable so long as the employer or anyone acting on behalf of the employer does not derive any benefit or profit, directly or indirectly, from the transaction.

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