Employers must be cautious when making deductions from an employee's wages. The general rule in New Hampshire is that deductions are not allowed except for very specific situations. Even when an exception applies, strict conditions generally must be satisfied.

All employers are familiar with the deductions allowed under New Hampshire law for federal tax with-holding requirements. Many employers are familiar with the deductions allowed for their employees' contributions to retirement and medical plan premiums. Many employers are not familiar, however, with their right (or the limitations of their right) to make deductions for other reasons. There are two types of deductions that we frequently receive questions about. The first is whether an employer may offset an employee's wages to recoup loans that it has made to an employee. The second is whether an employer may offset an employee's wages to recoup accidental overpayments that it has made to an employee. These types of deductions are allowed under New Hampshire law, but are limited.

In both situations there must be a written agreement with the employee authorizing the deductions. The written agreement requirements for both types of deductions are similar and include, in addition to standard contract terms, (i) the date/time that the deductions will begin and end, (ii) the amounts to be deducted from each paycheck, and (iii) a statement as to whether the employer may deduct any amount outstanding from an employee's final wages at termination of employment. Two additional limitations regarding accidental overpayment deductions are that the deductions must begin one pay period after the employee signs the agreement and may not exceed 20% of an employee's gross salary in any pay period. The requirements noted surprise many employers. Nevertheless, employers that fail to satisfy such requirements, in addition to any other state or federal requirements that may apply, are at risk.

In addition to the types of deductions discussed in this article, there are others that are allowed, such as deductions that may be made from an employee's final wages for vacation time used but not earned. However, wage deductions pose many potential pitfalls for employers, and legal counsel should be consulted in this regard. This article is not intended to provide specific legal advice.