The Colorado Wage Act prohibits employers from deducting earned wages from employees’ paychecks except in limited circumstances. In Interpretive Notice & Formal Opinion #16 (“INFO # 16”), the Colorado Department of Labor (“CDLE”) addresses deductions from, and credits towards, employee pay. INFOs are not binding law, but are the CDLE’s officially approved opinions and notes to employers on how the CDLE applies and interprets the statutes and rules within its jurisdiction.
What Are Wage Deductions and Credits?
Deductions and credits both reduce the wages paid to employees. Deductions are amounts subtracted from a paycheck, such as deductions for taxes or health insurance premiums. Credits are amounts for which employers take credit as wages, such as tips paid to employees.
The CDLE Has Issued an Interpretive Notice & Formal Opinion Regarding Deductions and Credits for Employee Pay Under The Colorado Wage Act (2022)
In INFO # 16, the CDLE notes that employers have the burden of showing that a particular deduction or credit is permitted. All deductions and credits must be itemized in an employee’s paystub.
Even if otherwise allowable, the Colorado Wage Act does not allow any deduction that would take the employee’s wages below the minimum wage. However, if an employee was paid at least the minimum wage as part of gross pay, withholding amounts for taxes or to repay advances of wages (as described below) is allowable.
Why Would an Employer Deduct Money From My Wages?
The following categories of deductions are generally authorized by the Colorado Wage Act: (a) deductions required by or in accordance with laws or court orders, (b) deductions for things provided to an employee for their benefit, with a written agreement; (c) deductions for employee theft; (d) deductions based on an employee’s revocable authorization; and (e) deductions for an employee’s failure to return money or property at separation.
In INFO # 16, the CDLE discusses each of these deductions, and the statutory requirements to make such deductions, with several helpful examples.
Deductions Required by or in accordance with Laws or Court Orders.
An employer may make deductions required or authorized by laws such as those for taxes or FICA benefits, garnishments or other court-ordered deductions, and automatic enrollment in employee retirement plans.
Deductions for Things Provided to an Employee for Their Benefit, With a Written Agreement.
An employer may deduct for loans, advances (including accidental overpayment of wages), goods, services, equipment, or property it provided to an employee, under certain conditions. Those conditions are:
- The employer has the employee’s written agreement to make the deduction;
- The written agreement must be enforceable and lawful;
- The deduction may not bring pay below minimum wage, as discussed above; and
- The things provided to the employee must be for the employee’s benefit, not for an employer’s cost of doing business.
If an employer accidentally overpays an employee, the employer may deduct the overpayment from a later paycheck if: (a) it tells the employee in writing that it will make the deduction, including the amount and manner of deduction (i.e., one paycheck or several); (2) the deduction is from wages earned in pay periods after the pay period in which the notice is provided; and (3) the employee agrees to the deduction, either expressly or by continuing to work in the deduction pay period(s).
Deductions for Employee Theft.
An employer may deduct for a shortage due to an employee’s theft, but only if the employer filed a police report claiming theft by the employee, and then:
- If criminal charges are filed within 90 days of the police report, the employer may withhold the wages until there is a final outcome in the criminal case.
- If criminal charges are not filed within 90 days, or the employee is found not guilty, or charges are dismissed, then the employer owes the employee the amount withheld, plus interest.
An employer acting without good faith in withholding wages due to a claimed employee theft, may owe the employee triple the wages deducted, attorneys’ fees, and court costs.
Deductions Based on an Employee’s Revocable Authorization.
If an employee authorizes a deduction, and then revokes the authorization, an employer may deduct for things like medical insurance, savings plans, stock purchases, and supplemental retirement plans. Defined enrollment periods when an employee may revoke a previously authorized deduction are permissible.
Deductions for an Employee’s Failure to Return Money or Property at Separation
An employer may deduct to recover the amount of money or the value of property that an employee failed to pay or return upon the end of the employment relationship, if:
- The employer entrusted the employee with collecting, disbursing, or handling the money or property;
- The employer and employee had agreed that the employee would return the money or property;
- The employee failed to return that money or property as agreed.
An employer has 10 calendar days after an employee’s separation to determine that the money or property was not returned, and to determine the value of that money or property. However, the statutory requirements to make this type of deduction will be changing significantly, effective January 1, 2023.
Requiring Employees to Incur Business Expenses.
According to INFO # 16, an employer cannot avoid deduction or minimum wage/overtime requirements by making employees pay business expenses, if
- The expense is primarily for the employer’s benefit or convenience;
- The employer does not reimburse the employee; and
- The lack of reimbursement drives wages below the legally required minimum wage or overtime wage.
No deduction is allowed if it’s not authorized under any of the deduction categories authorized by the Colorado Wage Act, as discussed above.
According to INFO # 16, an employer cannot deduct from an employee’s wages — or withhold a paycheck entirely — because the employee:
- Cost the employer an important sale or client;
- Performed their work in a manner unsatisfactory to the employer;
- Was fired, or failed to give two weeks’ notice of quitting; or
- Used company property for personal use, causing wear and tear, or damage, to the company’s property.
If an employer believes an employee owes it money, but no deduction authorization applies, the employer may not make a deduction from the employee’s pay. The employer, however, may have other avenues to try to recover money from an employee.
What Would Be Considered a Credit To My Wages?
There are only three allowable credits an employer may take towards payment of the minimum wage.
- Lodging credits for employer-provided housing. The credit cannot exceed the lower of the following: (a) the employer’s reasonable and actual cost of providing the housing; (a) the fair market value of the housing; or (c) per week, $25 for a room (in a shared residence, dormitory, or hotel) or $100 for a private residence (apartment or house). The housing must be voluntarily accepted by the employee, and primarily for their benefit and convenience. A written agreement must state the existence and amount of the credit.
- Meal credits for employer-provided meals. The credit cannot exceed the meals’ reasonable cost or fair market value, and cannot include profit to the employer. The credit is available only if the employee accepts the meals voluntarily and without coercion.
- Tip credits of no greater than $3.02 per hour may offset wages of “tipped employees” (employees in jobs customarily and regularly receiving over $30.00 per month in tips). An employer claiming a tip credit must pay at least the full minimum wage minus no more than $3.02 per hour. If that amount plus tips does not equal the full minimum hourly wage, then the employer must make up the difference.
Are You Having Issues With Paycheck Deductions?
If you have concerns regarding deductions or credits that have affected your paycheck, Baird Quinn’s employment attorneys can help. Our team has extensive experience with Colorado employment laws and the Colorado Wage Act and are available to help you navigate this complex area of the law.