In a rare employer-friendly move, the Illinois Department of Labor recently amended the requirements imposed on employers when making deductions from employee wages. Specifically, the state agency amended the employee consent requirements to recognize that employers and employees may enter into an agreement, in advance of making deductions, permitting such deductions when they are to recur over a period of time. The new rule became effective on August 22, 2014.

The Illinois Wage Payment and Collection Act (IWPCA) limits the circumstances under which unilateral deductions from employee wages or final compensation may be made. With limited exceptions for items such as payroll tax withholding and wage garnishment orders, an Illinois employer generally may not make deductions from an employee’s wages or final compensation without first obtaining the employee’s written authorization “given freely at the time the deduction is made.” Prior to the August amendment, to comply with the IWPCA’s requirement that employees freely give authorization at the time the deduction is made employers were required to obtain the employee’s express written consent prior to each deduction even when the deductions were to recur over a series of pay periods.

Previously, the law included only one exception to this contemporaneous authorization requirement for situations in which the employer and employee had entered into a valid cash advance agreement—a scenario covered by its own specific requirements under the IWPCA’s implementing regulations. Now, Illinois employers may enter into written agreements with their employees in advance of making deductions allowing a recurring series of deductions to be made over time without obtaining the employee’s written consent prior to each deduction.

Practical Tips for Employers

Illinois employers that choose to obtain advance authorizations for recurring wage deductions must include the following in their agreements with employees:

  1. the period of time during which deductions will be made;
  2. a deduction in the same amount each period; and
  3. a statement indicating that the employee may voluntarily withdraw his or her authorization for the deduction.

Employers should maintain a copy of the agreement authorizing payroll deductions for a minimum of three years to ensure appropriate recordkeeping under Illinois employment laws. Even with a written wage deduction agreement in place, when administering wage deductions employers should be cognizant of whether a deduction will cause an employee’s wages to drop below the minimum wage for a particular pay period. In addition, employers should also ensure that deductions do not exceed 15 percent of an employee’s gross wages or final compensation per paycheck, or otherwise conflict with deduction limitations imposed by the federal Consumer Credit Protection Act.