The High-Stakes Gamble of Withholding Employee Pay for Unreturned Company Property
Like most businesses, you've invested in equipment for your employees, such as computers and phones. When an employee leaves, it's natural to want to ensure this property is returned. According to a survey by Capterra, 71% of HR professionals reported that at least one departing employee failed to return company equipment like laptops or mobile phones. This statistic is even more concerning for remote and hybrid workers, with nearly 17% more likely to withhold equipment compared to on-site employees. You might be wondering if you can withhold their final paycheck as leverage. The short answer is: No, you cannot. Let’s break down why and explore better ways to handle this situation.
Legal Ramifications
Federal law, specifically the Fair Labor Standards Act (FLSA), requires employers to pay employees for all hours worked, but does not specify a timeframe for the payment. Their final paycheck must be paid on time according to your regular pay schedule or state law, whichever is stricter.
State Laws
Many states have wage laws that protect employes from having their pay withheld or delayed. To find out what your state law requires, contact your U.S. state office on the Department of Labor’s site here. These laws specify exactly when a departing employee must receive their final paycheck, often requiring payment immediately or within a few days of the last day worked. The laws also specify the length of time depending on if the separation was involuntary or voluntary. Withholding pay beyond these deadlines is illegal. Holding back wages as leverage to get company property returned violates these laws.
FindLaw is a legal website peer-reviewed by attorneys that summarizes the final pay laws here.
Potential Penalties
Failing to pay an employee on time can result in significant penalties. These may include:
Fines, interest and damages from state labor departments
Liability for the employee's legal fees if they sue
Potential additional damages beyond the owed wages such as business reputation
According to a survey by Capterra, employees walk away with about $2,000 worth of equipment, on average.
Better Alternatives
The return of company property and payment for work performed are separate issues legally. You can't use one to enforce the other. Often, a simple reminder or a clear explanation of the employee's responsibility is enough to ensure company property is returned promptly. Instead of withholding pay, consider these options:
Payroll Deductions (Where Permitted): In some states, employers can deduct the cost of unreturned property from an employee’s paycheck, but only if: 1) the employee has signed a written agreement allowing this deduction and 2) the deduction doesn’t bring the employee’s pay below minimum wage. The appropriate state law will determine whether this is an option, and you must have the employee’s consent in writing.
Hold the Final Paycheck Until the Next Scheduled Pay Date (if Legal in Your State): Some states allow employers to wait until the next scheduled pay date to issue a final paycheck, giving you time to request the return of company property. However, this doesn’t mean you can withhold pay indefinitely.
Bill the Employee: Send a bill to the employee for the value of the unreturned equipment after their final paycheck is issued. List the equipment, quantity, value, return label, instructions on how to return, and send using certified mail with a delivery and signature confirmation. Be sure to make a copy of the contents to retain in the employee’s file.
Send a Formal Demand Letter: Send a written demand for the return of the property. This letter can include a deadline and state that legal action may be taken if the equipment is not returned. Sending from a legal expert such as CPR or an employment attorney may hold more credibility.
Pursue Legal Action: If all else fails, you may need to file a policy report or pursue small claims court to recover the value of the equipment. According to a survey by Capterra, employees walk away with about $2,000 worth of equipment, on average. While this may seem extreme, it’s often the best legal route if other methods fail.
Implement Proactive Measures
The best way to avoid these situations is to take preventive measures:
Maintain an inventory of all company-issued equipment to include serial numbers to keep track of all company property.
Implement IT measures to protect your assets by remotely wipe sensitive data from all equipment and completely lock out employees from using the equipment beyond their last day of employment.
Have employees sign an agreement that outlines their responsibilities when issuing company property. This agreement should specify that the employee is responsible for returning all company property upon termination or departure. Include details on what happens if they fail to return the equipment, such as potential deductions from their final paycheck (where allowed by state law) or legal action.
Conduct exit interviews and include a checklist to remind the employee of their obligation to return company property.
Create a streamlined process for returning equipment, such as scheduling a return date, providing pre-paid return labels, or offering a convenient drop-off location.
Permit employees to use their own personal device (BYOD). Cisco reported that 95% of organizations permit their employees to use personal devices. Security breaches are much more prominent from an employee’s personal device, so ensure there are IT measures in place to protect sensitive data. Also, Samsung reported that about 89% of companies provide a stipend to the employee who BYOD between $30-$50 a month.
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Conclusion
While it's frustrating (and costly) when employees don't return company property, withholding their final paycheck is not the solution. It's better to be proactive about company equipment expectations. Remember, maintaining a reputation as a fair employer who follows the law is far more valuable and less costly in the long run than the cost of unreturned equipment. Always consult with a local employment attorney or HR consultant like CPR for advice tailored to your specific situation and location.
Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information.
