Various federal laws place limitations on what you can deduct from an employee's last paycheck. In a BLR webinar titled "I Quit/You're Fired: Best Practices for Administering Final Pay and Severance Payments," Terry Price outlined some guidance for issuing that last paycheck.

In a related article, Price provides 10 rules for preventing lawsuits regarding an employee's last paycheck. Here he explains which laws apply to final paycheck deductions.

Laws that Impact Final Paycheck Deductions

• FLSA. You have to pay the employee the minimum wage for all hours worked. For some employees, this may mean that you can take a deduction as long as it doesn't take the final pay below a minimum level. However, for employees paid minimum wage, any deductions may run afoul of the FLSA.
• OSHA. There are limitations on what you can charge employees for safety clothing and equipment.
• ERISA. Medical plans, pension plans, disability plans, life insurance plans, and severance plans are all affected. You need to look at the terms of the plan to see if deductions are allowed from final pay. Also you will need to ensure you had employee consent as part of participation in the plan before making such a deduction.
• FMLA. While an employee is an authorized FMLA leave, they are supposed to be able to continue their insurance coverage. You can require the employee to pay their share. The FMLA has rules that limit the types of deductions and under what circumstances they can be made when the employee leaves.
• Copeland Anti-Kickback Act. The law applies to anyone who is a federal government contractor. It is to prevent employees from giving the employer back the required wages that are normally determined under some type of wage determination.
• State laws. Some of the final pay laws have within them statements about what an appropriate deduction.

What Happens if the Employee Disputes the Last Paycheck Total?

If the employee disputes your tally, immediately invite the employee to give you, in writing, his/her calculations and reasoning ASAP. Promptly consider what you receive, if any, from the employee. Get advice ASAP if you need it. Document what you have done to resolve the dispute. Acting in good faith can help avoid a lawsuit as well.

The above information is excerpted in part from a BLR webinar titled "I Quit/You're Fired: Best Practices for Administering Final Pay and Severance Payments," with expert Terry Price. For more information on final pay law, order the webinar recording. To register for a future webinar, visit http://catalog.blr.com/audio.

Attorney Terry Price, a partner in the Birmingham, Alabama, office of Ford & Harrison, LLP, has practiced employment law for more than 30 years. He assists employers in the development and day-to-day management of EEO, employee benefits, workplace safety and health, and management training programs.