10.21.05

Amendments to N.C. Wage and Hour Act
Affect Employers’ Right to Deduct From Wages

Amendments to the N.C. Wage and Hour Act affect an employer’s rights and obligations with respect to deductions from wages. The amendments were signed into law by Governor Mike Easley on September 29, 2005, and they became effective on October 1, 2005.

The Wage and Hour Act always required written authorization for certain deductions from wages. However, the statute was relatively general. The amendments are much more specific and, to some extent, track regulations that were issued by the state Department of Labor in 1999. Here are the highlights:

DEDUCTIONS FROM WAGES

  • When the amount or rate of deduction is known and agreed upon in advance, the written authorization to deduct from wages must (1) have been signed on or before the payday in which the deductions were to be made; (2) include the reason for the deduction; and (3) state the actual dollar amount or percentage of wages to be deducted.
  • When the amount or rate of deduction is not known and agreed upon in advance,the authorization must include the same information as above except for the dollar amount or percentage of wages to be deducted. Before any deductions can be made under these circumstances, the employee must receive advance written notice of the amount to be deducted, written notice of the right to withdraw the authorization, and be given a reasonable opportunity to withdraw the authorization in writing.
  • During a week in which overtime is not worked, the employer may reduce the employee’s wages to the minimum wage level.
  • During a week in which overtime is worked, the employer may reduce “straight time” wages to the minimum wage level but may not reduce overtime.
  • For deductions resulting from cash shortages, inventory shortages, or loss or damage to the employer’s property, the employer may make deductions from wages upon giving seven days’ notice to the employee (in addition to complying with the restrictions described above). If employment is terminated, this type of deduction may be made without regard to the seven-day notice period. If the employee is charged, indicted, or arrested in connection with such a shortage, the employer may make deductions without written authorization, but the amount of the deductions is limited as set forth above. If the employee is acquitted, the employer must reimburse the employee. The statute does not limit the employer’s right to bring a civil action against the employee for any such shortages.
  • Overpayment of wages due to an employer’s bona fide mistake is considered prepayment of wages and may be withheld or deducted from subsequent wages without regard to the restrictions described above. (This also applies to advances of wages to the employee or to a third party at the employee’s request; and to the principal amount of employer loans to the employee.) However, if the employer wishes to charge interest or other penalty, deductions for the interest/penalty are subject to the restrictions.

CHANGES TO AMOUNT OF WAGES

The amendments also require that written notice of changes in wages be provided at least 24 hours before the changes take effect. The old version of the statute did not provide a specific deadline. (As with the original version of this statute, increases in wages may be made retroactively.)
Employers beware: this requirement of prior notice also covers changes in bonus-calculation formulas and production standards that are less favorable to the employee – a number of North Carolina employers have been “burned” on this issue, even under the old statute.

The changes are codified at N.C. Gen. Stat. §§95-25.8, 95-25.11, and 95-25.13(3).

If you have questions or need assistance in amending your wage deduction policies in light of these amendments, feel free to contact any attorney in Constangy’s Asheville or Winston-Salem, NC, offices, or the attorney of your choice.

Constangy, Brooks & Smith, LLC has counseled employers, exclusively, on labor and employment law matters since 1946. The firm represents Fortune 500 corporations and small companies across the country. More than 100 lawyers work with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. Offices are located in Georgia, South Carolina, North Carolina, Tennessee, Florida, Alabama, Virginia, Missouri, and Texas. For more information about the firm's labor and employment services, visit www.constangy.com, or call toll free at 866-843-9555.

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