What Can be Deducted from Workers’ Wages in Pennsylvania?

Misunderstandings about wage withholding are common among small business owners. For employers, violations of wage payment and withholding laws can lead to regulatory action and even personal liability.  It’s crucial for both employers and employees to understand the rules surrounding this issue to ensure compliance and protect their rights. We'll explore the legal framework governing wage withholding in Pennsylvania, including what can be withheld, the procedures involved, and the consequences of improper withholding.

What is Wage Withholding?

Wage withholding refers to the practice of an employer deducting certain amounts from an employee's paycheck before it is paid out. These deductions may be required by law or agreed upon by the employee. In some instances, employers may be tempted to withhold amounts or even entire paychecks from their employees.

Legal Basis for Withholding Wages in Pennsylvania

1. Mandatory Withholdings

Certain deductions are mandatory and must be made by employers under federal and state law:

• Federal Income Tax: Employers are required to withhold federal income tax from employees’ wages as determined by the IRS.

• Social Security and Medicare Taxes: These taxes are also mandated and must be deducted from employee wages.

• State Income Tax: Pennsylvania has a flat state income tax rate that employers must withhold.

• Local Taxes: In some areas, employers must also withhold local wage taxes, which can vary by municipality.

2. Voluntary Withholdings

Employers can also withhold wages for deductions that employees voluntarily agree to in writing, which might include:

• Health Insurance Premiums: Contributions to health insurance plans can be deducted.

• 401(k) Contributions: Employees may choose to contribute a portion of their wages to retirement plans.

• Union Dues: If employees are part of a union, dues may be withheld.

• Paycheck Advances: Federal laws prohibit paycheck deductions that reduce an employee’s pay below minimum wage. But payroll advances are the exception to this rule. If an employee owes your business money because of an advance, you can withhold money to repay it. Some states don’t allow this exception, so be sure to check with an attorney in your state beforehand. Businesses aren’t allowed to profit from payroll advances. You can charge an administrative fee to cover paperwork, bank charges, or recordkeeping changes, but you can’t make money off them. If you choose to charge an admin fee, keep it low.

• Contributions authorized in writing by the employee for charitable purposes.

• Deductions for purchases or replacements by the employee from the employer of goods, wares, merchandise, services, facilities, rent, or similar items.

• Deductions for purchases by the employee for his/her convenience of goods, wares, merchandise, services, facilities, rent, or similar items from third parties not owned, affiliated, or controlled directly or indirectly by the employer.

3. Authorized Garnishments

Employers are permitted to withhold wages for authorized garnishments. This typically occurs following a court order, including:

• Child Support Payments: Employers must comply with garnishments regarding child support, which can require them to withhold a certain percentage of wages.

• Tax Levies: The government may issue a levy to collect unpaid taxes, directing employers to withhold a portion of an employee’s wages.

Limitations on Wage Withholding

While withholding wages is often necessary, there are limitations to prevent abuse:

• Minimum Wage Compliance: Federal laws prohibit paycheck deductions, even those done with the permission of the worker, that reduce an employee’s pay below minimum wage.

• Limits on Garnishments: Under the Consumer Credit Protection Act (CCPA), an employer cannot garnish more than 25% of an employee's disposable earnings (the amount left after mandatory withholdings) or the amount by which the employee’s earnings exceed 30 times the federal minimum wage, whichever is lower.

Unlawful Withholdings

Under Pennsylvania law, the general rule is that all employee deductions have to be for the employee’s benefit, not the employer’s.  Some common payroll deductions often made by employers that are unlawful include:

• Tips: An employer cannot collect, take, or receive any gratuity or part thereof given or left for an employee, or deduct any amount from wages due an employee on account of a gratuity given or left for an employee. However, a restaurant may have a policy allowing for tip pooling/sharing among employees who provide direct table service to customers.

• Photographs: If an employer requires a photograph of an applicant or employee, the employer must pay the cost of the photograph.

• Physical Exams, Blood Tests: An employer may not withhold or deduct from the wages of any employee or require any prospective employee or applicant for employment to pay for any pre-employment medical or physical examination taken as a condition of employment, nor may an employer withhold or deduct from the wages of any employee, or require any employee to pay for any medical or physical examination required by any federal or state law or regulation, or local ordinance.

• Paying for shortages at the cash register or broken items: This is also allowed at the federal level as long as it doesn’t bring your pay below minimum wage; but it’s disallowed in some states. In Pennsylvania, they are assumed to not be allowed because such deductions don’t benefit the employee.

Procedures for Withholding Wages

Employers must follow specific procedures to ensure lawful wage withholding:

1. Written Authorization: For voluntary deductions, employers should obtain written consent from the employee, specifying what will be deducted and how much.  This should be signed in advance of commencement of the deductions.

2. Proper Notification: If an employer receives a court order for garnishment, they must notify the employee of the order and the amounts to be deducted.

3. Timely Payments: Employers must remit withheld amounts to the appropriate authorities promptly to avoid penalties or liability.

Consequences of Improper Withholding

If an employer fails to comply with wage withholding laws, they may face serious consequences, including:

• Legal Liability: Employees may file lawsuits against employers for improper deductions or failure to pay earned wages.

• Fines and Penalties: The state and federal government impose fines for non-compliance with withholding rules.

• Department of Labor Audit: Mishandling wage withholdings may lead to workers filing complaints with the state or federal regulators.  These complaints can sometimes trigger an audit of all of the employer’s payroll practices.  Those happen without notice, are invasive and time consuming.

---

Wage withholding is a critical aspect of employment in Pennsylvania that requires careful adherence to legal standards. Misunderstanding of the rules is very common.  Employers should understand the rules governing these deductions to ensure compliance and protect themselves from liability and governmental investigations. If you are unsure about your obligations or rights relating to wage withholding, consulting one of the experienced employment attorneys at Fiffik Law Group.  We can provide clarity and help you navigate potential challenges.