Employment Law: What type of deductions out of an employee's paycheck are permitted?
What type of deductions can an employer take out of an employee’s paycheck?
Under Indiana law, there are three requirements that must be satisfied in order for a wage deduction to be valid:
(1) The agreement for the deduction must be in writing, signed by the employee, by its terms revocable at any time by the employee upon written notice, and agreed to in writing by the employer.
(2) A copy of the deduction agreement must be delivered to the employer within ten days of its execution.
(3) Only certain categories of deductions are allowed, including:
a. premiums on an insurance policy;
b. contributions to a charitable organization;
c. purchase price of bonds, securities or stock of the employing company;
d. labor union dues;
e. purchase price of merchandise sold by the employer to the employee;
f. amount of loan made to the employee by the employer;
g. contributions of the employee to a hospital service or medical expense plan; and
h. payment to an employee's direct deposit account.
A somewhat related question is whether an employer can fine an employee and take the fine out of the employee’s paycheck. This practice is prohibited in the State of Indiana. If an employee feels that this has occurred, the employee should file a complaint with the Indiana Department of Labor’s Wage and Hour Division.
Additional Resources
For additional resources, visit the Indiana Department of Labor's Wage and Hour Division's website.
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