Regaining your balance when you loan money to employees

Q         We loaned an at-will employee money as an advance, and they signed a repayment agreement that said if their employment ended before the loan was fully repaid, the remaining balance would be deducted from their final paycheck. What do we do if the remaining balance exceeds the total amount of the final paycheck?

You are permitted to withhold an entire paycheck, even below the minimum wage requirements of the Fair Labor Standards Act (FLSA), for cash advances such as these. It’s important to note, though, that only the principal may be deducted from the employee’s wages because deductions for interest of administrative costs on the advance are illegal as far as cutting into the minimum wage requirement.

Also important to note is that this type of deduction must be authorized in writing by the employee to be valid under the Texas Payday Law. Seeing as there is a signed repayment agreement here, the withholding of the employee’s paycheck is admissible. Refer to Section 30c10(b) of the Field Operations Handbook, regarding voluntary assignment of wages, loans, and advances, for additional details here.