Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
Dear Littler: We are a multi-state employer that allowed a large percentage of our employees to work remotely during the pandemic. To help facilitate the transition to home offices, we provided our remote workers with office equipment, cell phones, laptops, monitors—you name it. Some of these employees have now returned to the workplace as their primary office but have yet to return these items. We have the same problem with those who have quit. Can we deduct the cost of unreturned property from their paychecks?
—No Good Deed in Decatur
We hear your frustration and you are certainly not alone. Employers had to adapt to a changing work environment in a short period of time and invested significant sums in the process. Trying to recoup that investment can be challenging as workers wandered to different cities, states, and even countries from their employer’s physical location. Employees may be enjoying having a full home office for the time they spend working at home or performing personal projects. Ex-employees might be reluctant to return company property out of spite, particularly if they left on bad terms. Or they just might not have gotten around to it, or not realized the items were not theirs to keep. While withholding a final paycheck or deducting the amount from a current employee’s pay might be tempting, there are significant restrictions on this approach depending on the jurisdiction. But that does not mean there is nothing you can do. First, we will explain why deductions might be problematic for you, then we will address steps you can take to get your equipment back.
Deducting from Paychecks
Many states have laws in place that govern how, when, and how much an employer can deduct from an employee’s paycheck. In most instances, simply deducting the entire value of the unreturned property from the employee’s paycheck, or withholding the paycheck entirely, is unlawful. In some states such as Indiana, for example, deductions for unreturned company property are not included within the express list of permitted purposes for payroll deductions. In other states, including Arizona and Illinois, employers may deduct the amount of the unreturned property only pursuant to a written agreement between the employer and employee. In your question you do not indicate whether you received a deposit upon issuance of the equipment, but some states, including Alaska and Delaware, allow employers to require a reasonable deposit as security for the return of equipment. That said, in many instances, such a deposit cannot be deducted from employee wages unless the employee provides written consent to do so. Lastly, if you are moving forward with making a deduction from a current employee’s paycheck, ensure the employee’s post-deduction pay is above the applicable minimum wage.
Deducting from Final Paycheck
Whether you can deduct these amounts from an employee’s final paycheck is also highly regulated by state law. Several states have laws stipulating how an employer must distribute the employee’s final paycheck. For example, in your home state of Illinois, an employer cannot withhold any part of an employee’s final pay while awaiting return of employer property unless the employee freely gives express written consent when the deduction is made. A handful of states do allow employers to offset the value of unreturned property from an employee’s final paycheck, but outline specific steps an employer must take to recoup the amount of any unreturned property after the employees separate from employment. In Colorado, for example, an employer has ten calendar days after employment is terminated to audit and adjust the property value of any unreturned items entrusted to the employee before the employee's wages or compensation must be paid. California’s Wage Orders do allow for an employer to deduct the value of unreturned equipment from final wages if the employee provides express written authorization. Even so, employers should consult wage and hour counsel before making such deductions, as penalties for so-called “wage theft” or waiting time penalties can be steep, especially in California.
Finally, there are a number of states in which an employer simply cannot withhold any part of an employee’s final wages while the employer awaits returns of its property the employee possesses. Awaiting the return of company property is not an excuse for failing to provide the final paycheck by the timeline established by state law. Moreover, in Minnesota, once an employee makes a written demand for the last paycheck, the employer must deposit the amount or send the check within 24 hours. Similarly, in Idaho, the employer must issue final wages within 48 hours of a written demand for final wages. As noted above, even in states that do not have laws regulating the paycheck process, you still need to ensure any deductions do not drop the employee’s pay below the applicable minimum wage.
So, is all property lost for those who wandered? Not necessarily.
Helping Them Help You
As noted, some employees might just need some prompting and reminding. Notify your employees, preferably when the items are first issued, but certainly when it becomes clear the employees are ending their employment, that work equipment you provided is company property and must be returned. If you have a written policy in place regarding the employee’s obligation to return company property upon separation with a signed acknowledgement, re-send a copy of the policy with the employee’s signature of the policy or the employee handbook. If you do not have such a policy, consider adopting one.
In addition to a general policy, an individualized acknowledgment and authorization from the employee will be critical to making any deductions in a number of states. The acknowledgment and authorization should include: 1) that the equipment is company property and is expected to be returned when work from home is over or upon separation, 2) express authorization to deduct the value of any unreturned equipment from a paycheck or final paycheck, and 3) that any remaining amount (i.e., if available funds above minimum wage on final paycheck is less than the value of equipment) will be paid by the employee or will be deducted from a severance amount.
Make it as easy as possible for your employees to return the property. Consider providing a prepaid and prelabeled envelop or box they can simply drop off at the post office or nearest shipping company. For larger or more valuable equipment, consider picking the item up yourself through a service or company employee if local. Of note, some states will allow you to deduct for unreturned equipment but not damaged/broken equipment, so it is worthwhile to send appropriately padded and sized shipping containers or arrange for a personal pickup.
Incentives can also work in these circumstances. Sometimes providing a gift card, in even a nominal amount, in the pre-paid shipping container serves as enough of a carrot to convince the employee to do the right thing. You can, for example, provide a gift card for coffee or lunch while the employee runs the errand of dropping off their equipment at a shipping drop-off site.
If all else fails, there are civil and criminal routes to pursue to force the return of company equipment. While you can file a civil lawsuit or report the theft to law enforcement, the stick approach’s success will depend largely on the jurisdiction at issue and the applicable causes of action and criminal statutes. Consider this option if the value of the property is worth the time and effort it could take to go this route. This option is also utilized if the unreturned equipment contains trade secrets, privileged or confidential information, or other critically valuable information.
The key takeaway, Decatur, is that any attempt to deduct the value of unreturned property should be done with consideration of the laws of the applicable jurisdiction, and under the advice of counsel.