Whether your company provides advances on employees' paychecks is a matter of policy. While many employers provide advances to qualifying employees, many set rules to prevent abuse of the system, such as limiting the number of times a worker may take an advance in a year or capping the total amount of advance wages a worker may receive. Regardless of company policies on advances, employers always should require employees to agree to the advance and repayment terms in writing before issuing it.
In most states, including Texas, employers may not make deductions from an employee's paycheck other than payroll taxes without prior consent. Because of this, an employer that provides a payroll advance may not recoup the advance directly from an employee's paycheck without a written agreement, even in cases where future wage deductions were implied by the advance. Other cases in which employees must provide prior written consent for non-tax paycheck deductions include deductions made for union dues, health plans or retirement funds.
Advertisement Article continues below this adBefore an employer provides a worker with a payroll advance, the employee should submit a payroll advance form that expressly provides permission to withhold wages from a future payroll. An agreement may be a standard form or a letter submitted by the employee, and should state the amount to be provided in the advance, as well as provide permission to withhold the wage from a future, specific paycheck. The agreement also should include provisions from withholding the balance from the employee's final paycheck if he quits or is terminated before repaying the loan. The employee and employer should sign and date the agreement, which should be kept with the worker's wage records.
When workers agree to future payroll deductions as part of a payroll-advance loan repayment system, their total compensation may fall below minimum hourly wage requirements and overtime wage requirements dictated by the Fair Labor Standards Act. If interest payments and administrative fees are part of the advance agreement, they can't be assessed so they reduce the employee's actual earnings below federal minimum wage and overtime standards, according the U.S. Department of Labor's Field Operations Handbook.
Advertisement Article continues below this adIf an employee files a complaint about illegal payroll deductions to the Department of Labor following repayment of an advance, it's the employer's responsibility to prove he made a legal deduction. Because of this, documentation such as an advance agreement is necessary to protect an employer should a worker allege improper payroll deductions. The Texas Workforce Commission recommends that employers determine the requirements necessary to create a legally binding promissory note, and craft advance agreements to meet those standards.