Handling Final Pay

Many owners or managers get angry when an employee unexpectedly quits or when they are forced to fire an employee for misconduct, so they take it out on the employee by deducting as much as they can from that final paycheck. This behavior is rife with risk, so keep the following in mind before you start tallying those deductions:

First, former employees are alumni of your organization, for good or bad, so sometimes it may serve you better to let little things go and take the high road. This could reduce the chances they'll do damage to your employment brand by telling all their friends how horribly they were treated while working at your organization; and might minimize the chances that they'll file a complaint with the Department of Labor if you get too aggressive.

Second, make sure you're on solid footing when making those deductions: 

1. Don't hold their check! Some employers will hold the employee's final paycheck until all their "stuff" is returned. In most states (including NC, SC and VA) employers are required to pay the employee for time-worked by the next regular pay day. But know the laws in your state, as some require final pay as quickly as immediately for terminated employees, and the rules may be different for employees who voluntarily leave versus those who are terminated or laid-off). While you can't hold their entire paycheck, it is legal to withhold any preauthorized amounts from that final check so long as they don't run afoul of certain rules.
2. Have a signed document on file allowing the deductions. The employee must authorize deductions for damaged or lost equipment and uniforms, so make sure you have a signed document on file that gives you permission to take those deductions. It is best to specify the deduction amounts in the original document that the employee signed (Cell phone deduction = $150, for example). If there is no document on-file authorizing the deductions, you can't just arbitrarily hold $50 out of their check because their truck was returned dirty. 
3. Understand who benefits from the deduction. The state of NC, for example, differentiates the rules for deductions that benefit the employee (savings plans, parking fees, employee loans, uniforms that are not required, etc.) and deductions for the benefit of the employer (lost or damaged equipment, keys, uniforms which are required, etc.).
4. Watch for minimum wage and overtime. It is not permissible to take deductions to the employer's benefit that drop the employee's final pay down below minimum wage for actual time worked. Plus, you can't deduct anything to the employer's benefit from overtime wages. This makes it difficult to recover virtually any costs from minimum-wage workers, even with signed authorization forms. 
5. Be reasonable. If you issue an employee a new laptop in 2017 and they quit in 2020, deducting the full purchase price of that laptop (if not returned) is not going to seem reasonable to the investigator. The state of NC allows the deduction authorization to be non-specific in the case of depreciable assets like laptops, but the company must notify the employee, in-writing, the calculated value of the deduction per their authorization.  (Here's a link to a document that spells that out in more detail).
6. Vacation or PTO. Your employee who just quit had taken 5 vacation days this year but only accrued 3 per your policy, putting them 2 days in arrears. Those 2 days are considered pre-payment of wages in NC and not a deduction from wages. Therefore those two days of vacation or PTO can be adjusted on their final paycheck without regard to the minimum wage or pre-authorization limitations (at least in NC).

Final thoughts: if you are a small to mid-sized employer who makes his or her living leveraging the efforts of lower paid hourly workers, you're going to experience a certain amount of lost and damaged equipment. Some of the time you'll be able to recover the costs of an employee's negligence, but other times you won't. But don't make the mistake of going overboard in looking for ways to decrease that departing employee's final pay. When that $25 deduction for a lost tool or uniform shirt ends up costing you hundreds or even thousands because a regulator determined you were out of compliance in the way you handled it, you've really only outsmarted yourself.