So You Have An Employee Who Needs A Loan. You Like The Employee And Would Like To Loan Her The Money And Then Deduct Payments From Her Subsequent Paychecks. CAN YOU DO THAT?

The Texas Payday law regulates the manner in which employees are paid (Tex. Labor Code ?61.001, et seq.). Before a Texas employer can make deductions from an employee=s pay, that employer must first obtain a written authorization for the deduction. Only payroll taxes, court ordered deductions and other statutorily permitted garnishments (e.g., child support and guaranteed student loans) can be deducted in the absence of a written authorization. An employer cannot even deduct wage overpayments, loans or stolen amounts from the employee=s paycheck without first obtaining a written authorization.

Employers should obtain a specific authorization from the employee for any type of deduction arising in the course of employment, including repayment of loans made to the employee by the employer, advancements, wage overpayments, stolen amounts, etc. Even with a written authorization, the employer can still be forced to account for the deduction in the event that the employee disputes the amount or validity of the employer=s claim to the deduction. It should also be noted that some common types of deductions made by employers, even with an authorization, would violate the Fair Labor Standards Act (FLSA) if they take an employees pay below minimum wage.

So, in answer to the question - Yes, you may give an employee a loan and make payroll deductions to satisfy the loan amount if you obtain the appropriate written authorization to do so. And, in the case of a loan, the FLSA does not prohibit an authorized deduction, even if it would take an employees pay below the minimum wage. (Note: The deduction may not take an employees pay below minimum wage if interest or administrative fees are being assessed with the loan.)

The Texas Payday Law is one of the more plainly understandable statutes on the books with which an employer needs to be familiar. Some of the very basic issues made clear in the statute involve when and how wages are to be paid in Texas. For instance, did you know that Texas employers must pay employees who are covered by the overtime requirements of the Fair Labor Standards Act (i.e., not exempt) at least twice a month and employees who are exempt from the Fair Labor Standards Act need only be paid once per month?

Employers would do well to read the Texas Payday law for themselves. An excellent online source for employers is found at http://www.twc.state.tx.us. For more detailed issues, however, always consult your employment law specialist.

Terrence Robinson, Neel, Hooper & Banes, P.C.

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