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Can you charge employees an administrative fee to process…

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Can you charge employees an...
Can you charge employees an administrative fee to process payroll thru ADP? They get compensated with hourly rate plus monthly commission.
Submitted: 4 months ago.Category: Employment Law
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Answered in 5 minutes by:
12/30/2017
Employment Lawyer: Allen M., Esq., Employment Lawyer replied 4 months ago
Allen M., Esq.
Allen M., Esq., Employment Lawyer
Category: Employment Law
Satisfied Customers: 20,376
Experience: Employment/Labor Law Litigation
Verified

Thank you for trusting your question to JA today. I am a licensed attorney with over a decade of law practice and over 20 years of experience in the legal field. I’m happy to be of assistance.

In most states, you'd have to have an employee sign a document agreeing to this expense before the employer could legally deduct such a fee from the employee's check. Otherwise, it would be an illegal deduction (not all states follow this, but many do).

If the employee agrees to the fee though, the employer can certainly make the fee a condition of employment. Most employers treat such fees as the cost of doing business though.

If you have any further questions or other facts that you would like me to consider, please let me know. I invite follow up questions, so use REPLY for those. If you have no further questions then good luck going forward and please do not forget to rate my service with a three, a four or preferably a five star rating so that I receive credit for working with you today. Please rate me based on my service and not on your satisfaction with the law, which I am not in control of and I am just reporting to you. Also, feel free to request me in the future, if you have questions concerning a different matter.

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Customer reply replied 4 months ago
Hi Allen, we used to process commission compensation with payroll to save on ADP fees, however that was resulting in extra employment taxes on employees behalf. We decided to pay on separate dates so that don’t have to be taxed on higher tax bracket. Since we have to process an additional payroll we would like to charge an administration fee.Employment is at will.
And the state is IN.
Employment Lawyer: Allen M., Esq., Employment Lawyer replied 4 months ago

I have seen this tax argument, but it is flawed. They were only being taxed at a higher rate on their checks, because they were bigger for each check. When they completed their taxes each year, they got a larger return because their individual pay checks had been taxed at too high a rate. Now they won't be taxed as much on their smaller individual checks, but their tax return will be smaller because they will have paid in less (than it would have been), resulting in no net savings for the employees at all. All payroll taxes do is predict the ultimate tax. They aren't actually assigning a true, and irreversible tax rate to any income. At the end of the year, it all gets worked out and wages/commissions are taxed properly.

The employer will essentially incur a cost here, and understandably wants to pass it to the employees, but the employees don't actually benefit from the basis for the cost. The employer gains nothing here either, so it really seems a lose lose situation to do it at all.

That being said, you can charge the employees for the additional fee. Indiana is very strict about this sort of thing though. The state doesn't allow an employer to deduct wages from an employee's check for almost any reason. You can't for things like cash shortages, damage or loss, tools, uniforms or other items for employment. The employee can assign wages, in writing, with the right to revoke at any time, but even that is limited. The employee can only assign deductions for insurance, charity, purchasing company stock or merchandise, labor dues, repayment of a loan made by the employer to the employee, contributions to a medical expense plan or payment to direct deposit.

With that strict list, you couldn't deduct this fee from the employee's check. They'd have to independently pay you, by check or bank draft, on their own.

It doesn't seem worth it for anyone here.

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Employment Lawyer: Allen M., Esq., Employment Lawyer replied 4 months ago

Hello, I wanted to check in and make sure that there was not any additional information that you required after the response I previously provided to you. If you need further assistance, please use REPLY and ask me for any additional information you may need. If not, take care and have a great day.

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Experience: Employment/Labor Law Litigation

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