Maryland employers with paid leave policies often approve an employee’s request for time off in excess of his or her available leave balance in an effort to maintain employee morale, show compassion during a difficult time, or for a number of other justifiable reasons. However, if that employee leaves before accruing enough leave to cover those excess paid leave hours, employers are then put in the precarious position of trying to determine whether they may withhold wages from the employee’s final paycheck to offset the negative leave balance.
Maryland law views deductions from wages as extraordinary, but the Maryland Wage Payment and Collection Law (“MWPCL”) does permit an employer to withhold wages from an employee’s final paycheck in certain circumstances, including where (1) the employee has given express written authorization to the employer to make such deductions, or (2) the deduction is allowable to offset or “pay for” something of value the employee has received, such as a wage advance. As the MWPCL defines “wages” broadly as “all compensation that is due to an employee for employment,” including fringe benefits, the Maryland Department of Labor, Licensing and Regulation (“DLLR”) takes the position that excess paid sick or vacation time is generally considered an advance of wages that may be deducted with or without an employee’s authorization. Moreover, the DLLR confirmed that under such circumstances, the MWPCL allows employers to deduct advances in wages even if the deduction reduces the employee’s pay below the minimum wage.
Although DLLR may view an employer’s deduction of wages to offset a negative leave balance without written consent as permissible under the MWPCL, the MWPCL is only one statute that applies to payment of wages. The recently enacted Montgomery County Earned Sick and Safe Leave Act (“MCESSA”) (for more information on the Act, click here), provides that employers may deduct wages to offset a negative leave balance only with the employee’s written consent. Thus, employers covered by the MCESSA must obtain prior written authorization from their employees and cannot rely on the provisions of the MWPCL to deduct wages absent an employee’s signed authorization. Some employers not subject to the MCESSA may choose to obtain prior written consent from employees in any event to ensure compliance with MWPCL and to avoid surprising employees.
Employers must also be wary about the effect a decision to deduct wages may have on their ability to maintain certain exemptions to the overtime provisions of the Fair Labor Standards Act (“FLSA”). Under the FLSA, employers of white-collar “exempt” employees must ensure that those employees regularly receive a salary not subject to deduction based on the quality or quantity of work performed. (For more information on the Department of Labor’s (“DOL”) recent changes to the white collar overtime regulations, click here.) While the FLSA permits wage deductions for an employee’s vacation or illness, the DOL has reiterated that such deductions are permissible in the case of full-day absences only. Deducting an employee’s wages for partial-day absences can result in a reclassification of the employee as non-exempt.
Accordingly, a Maryland employer with compliant policies and records may choose to deduct the value of a negative leave balance from an employee’s final paycheck so long as the employer also (1) obtains prior written consent from the employee if the employer is covered by the MCESSA; and (2) for exempt employees, ensures that the negative leave balance relates only to full-day absences. Because deducting wages from an employee’s paycheck implicates multiple federal, state, and local statutes, employers should consult counsel to review and confirm that their existing leave policies and recordkeeping practices meet current requirements and to review particular questions in individual cases.