Deducting the Costs of Employee’s Uniform Rental Expenses

August 3, 2019 –

A common business expense for many employers is the cost of uniforms. Employers may want employees to look alike for marketing purposes or there may be safety and health reasons to keep employee dress on site. Federal law allows for deductions as long as the minimum wage is met. Indiana law was recently changed to clarify that either rentals or purchases of uniforms can be deducted. So, an employer can deduct the costs of uniforms, but it must be careful in doing so. A recent case and an amendment to an Indiana statute provide guidance to employers, making this alert timely.

Wage Deductions Under the Fair Labor Standards Act

The Fair Labor Standards Act (“FLSA”) requires every employer to pay the federal minimum wage of $7.25 an hour.[1] These wages must be paid “free and clear”  to avoid kickbacks benefiting the employer, meaning that the employer cannot pay the minimum wage then require the employees to pay back job-related expenses. Technically, this may prohibit an employer from charging for job-related expenses. However, the law is clear that there can be deductions so long as they do not reduce the employee’s pay below the federal minimum wage.[2]

Indiana’s Wage Deduction Statute

The Indiana Wage Deduction Statute[3] lists various expenses an employer may deduct from an employee’s wages. These include premiums on an insurance policy, a pledge or contribution to a charitable organization (traditionally the United Way), loan payments, etc. The Deduction Statute requires that a wage deduction is valid only when there is a written agreement personally signed by the employee. The employee must also be able to revoke the deduction at any time.

It is common practice to deduct for uniforms. But, the Deduction Statute was unclear whether the cost of uniforms could be deducted. In 2015, the Deduction Statute was amended to include deductions for costs related uniforms. However, the amendment only listed the costs to purchase; the costs to rent uniforms were not specifically included. A 2018 federal case in the U.S. District Court for the Southern District of Indiana held that the Deduction Statute did not allow deductions to rent uniforms.[4] Because the employer was deducting wages for uniform rentals, the court found the employer liable for improperly deducted wages for the rental costs of uniforms. The court ordered the employer to pay damages and attorney fees approaching almost $200,000.

2019 Clarifying Amendment and Current Status

Soon after this decision, the Indiana General Assembly amended Deduction Statute to authorize withholding for uniform rental and made that amendment retroactive.[5] This amendment makes the Deduction Statute more employer friendly by allowing employers to deduct the cost of uniform rental from an employees’ paycheck.

Now, the Deduction Statute allows the deduction of the costs for both purchasing and renting uniforms. However, the Deduction Statute specifically indicates that total deductions may not exceed the lesser of: (1) two thousand five hundred dollars ($2,500) per year; or (2) five percent (5%) of the employee’s weekly disposable earnings. Employers should talk to counsel to make sure deduction practices comply with both Federal and State Law. Otherwise, a well-intentioned but improper deduction could lead to a very costly learning lesson.

[1] 29 U.S.C. § 206(a)(1)(C).
[2] 29 C.F.R. § 531.35.
[3] Indiana Code 22-2-6-2.
[4] Weil v. Metal Techs., Inc., 305 F. Supp. 3d 948, 957 (S.D. Ind. 2018), vacated and remanded, 925 F.3d 352 (7th Cir. 2019).
[5] Weil v. Metal Techs., Inc., 925 F.3d 352, 354 (7th Cir. 2019).

If you have any questions about the information in this Legal Alert, please contact your Rothberg attorney to see if we can assist you.


Theodore T. Storer, Partner
260-422-9454

 

 

Even though the content of the above Rothberg Logan & Warsco LLP Legal Alert is primarily informative, state and federal law obligates us to inform you that THIS IS AN ADVERTISEMENT. You have received this advisory because you are a client or friend of the firm. Services may/will be performed by others.
The Legal Alert is for general information purposes only, and is not intended as legal, tax, or accounting advice or as recommendations to engage in any specific transaction and does not purport to be comprehensive. Under no circumstances should any information contained in this Legal Alert be used or considered as an offer or commitment, or a solicitation of an offer or commitment, to participate in any particular transaction or strategy. Any reliance upon any such information is solely and exclusively at your own risk. Please consult your own counsel, accountant, or other advisor regarding your specific situation. Rothberg Logan & Warsco LLP will not be responsible for any consequences of reliance upon any opinion or statement contained here, or any omission.