Employee Wage Deductions

November 2014
By: Walter J. Liszka, Esq.

In a rare and somewhat unexpected action, the Illinois Department of Labor, which is not perceived as an “employer-friendly agency,” recently amended the requirements that are imposed on employers when making deductions from employee wages.

Under the prior requirements of the Illinois Wage Payment and Collection Act, there were extremely limited circumstances under which unilateral deductions from employee wages or final compensation could be made. Under the provisions of Section 9 of that Act (820 ILCS 115/9), employers were permitted to deduct from wages or final compensation only the following:

1. As required by law (i.e., Federal and/or State Taxes or Medicare/Medicaid requirements).
2. Deductions for the benefit of an employee (i.e., 401(k) contributions or healthcare contributions).
3. Deductions made in response to a valid wage assignment or wage deduction order.
4. Deductions made from an employee’s check with written consent by the employee given freely at the time a deduction is made.

Simply stated, under the above requirements, if the employer and employee had agreed to a payroll advance, the employer was legally entitled to make a deduction from the employee’s pay only if the employee gave their written consent at the time of each and every deduction even if these were to reoccur over several pay periods.

 Under the new rule, which became effective August 22, 2014, employee consent requirements have been modified to recognize that employers and employees may enter into a written agreement in advance of making the deduction, permitting that deductions will occur over a period of time.

To take advantage of this new rule, the following must be followed:

1. The employer and employee must be entered into a written agreement authorizing the deduction over a recurring series of deductions over time.
2. The written document must provide, over the period of time during which the deductions will be made, very specific dates (time frame in which the deductions will occur).
3. The periodic deduction must be for the same amount for each pay period.
4. The written authorization must contain a statement that the individual employee may voluntarily withdraw his or her authorization to make the deduction and that this withdrawal should be in writing.

Although not required, it is the suggestion of the author that this written agreement authorizing the deductions be executed in duplicate original copies with one (1) original to be retained by the employer and the other original to be retained by the individual employee.

Employers should also take note that even with this new rule authorizing a written document permitting this type of deduction, no deduction can take place if the deduction would allow an employee’s actual received wages to be less than the minimum wage for a particular pay period and, in addition, employers should ensure that deductions do not exceed fifteen percent (15%) of the employee’s gross wages for the pay period or final compensation because this would create a potential conflict with the Federal Consumer Credit Protection Act.

Surprising as it may seem, the Illinois Department of Labor has finally “scored one” on behalf of the employer!

Questions? Contact Walter J. Liszka, Managing Shareholder of Wessels Sherman’s Chicago office at (312) 629-9300 or by email at waliszka@wesselssherman.com.