However, there are many things to consider before instituting a policy about charging deductibles. Are there state and local laws that prohibit charging a deductible? Does it matter whether the employee is exempt or non-exempt? Does it make a difference if a company self-insures? How will such a policy affect employee recruiting and morale? Before you adopt a corporate policy of charging deductibles for preventable accidents, you must understand all the issues in order to protect yourself legally.
State and federal law
State and federal laws may restrict or prohibit the company’s ability to make payroll deductions for loss or damage. Under the federal Fair Labor Standards Act, employers may deduct wages for loss or damage if two conditions are met:
1. He or she signed a written statement agreeing to the deduction beforehand; and
2. The deduction does not bring a non-exempt employee’s hourly rate below the minimum wage or violate overtime requirements.
Companies cannot deduct wages directly from exempt workers who are not subject to minimum wage and overtime requirements, according to a 2006 US Department of Labor Opinion Letter.
Some states have also weighed in on the issue. In California, for example, employers may only deduct for cash shortages, breakages and equipment loss if an employee acted with gross negligence or through a dishonest or willful act.
Charging a deductible for preventable accidents may cause a backlash. When wage deductions are not allowed, employees will likely have to pay out of pocket. This may be difficult to enforce, unless the company is willing to consider terminating or suing the employee. Employees may resent paying for an accident that happened while performing duties for their employer.
Knowing they may be financially responsible, employees may also fail to report minor accidents or be tempted to lie to the company about how an accident occurred.
There are also the administrative aspects of charging employees deductibles. If you require employees to pay a deductible, you must have the employee’s prior consent in writing. The human resource department and individual managers must spend time ensuring all the paperwork is complete, accurate and accessible. With the administrative work involved, it may be more trouble than it is worth for some companies to charge deductibles, particularly smaller companies with fewer workers.
Rather than charging deductibles, employers may want to consider other approaches to discourage unsafe habits or to punish such activities. Education and training designed to minimize accidents is one proactive approach. Discipline for accidents is another – as parents of teenagers know, taking away the keys to the car can be a highly effective form of punishment. If an employee has had several accidents, termination may be the final option.
When it comes to charging employees deductibles for accidents they could have prevented, there are many aspects to consider. Whatever approach you take, ensure that it makes sense from a financial, logistical and employee-morale perspective. Since laws can vary so much depending on your state and type of insurance you possess, seek expert advice from lawyers, insurance brokers and HR staff who are familiar with the issues. Once you’ve chosen the right policy, be sure that your employees have been educated about the policy and signed all the necessary documentation. In case of disputes, you want to be able to prove that your policy was well thought out and consistently implemented.
Richard Alaniz is senior partner at Alaniz and Schraeder, a national labor and employment firm based in Houston.