Missouri Department of Labor Recognizes Ability of Employer to Recover Outstanding Loan from Employee

January 2016

Missouri Department of Labor Issues Opinion Letter Allowing Employer to Apply Final Wages of Employee to Outstanding Loan Even if Final Wages Drop below Minimum Wage

Employers occasionally make loans to employees, for the benefit of the employee, in which loan repayment terms include the employer's applying the employee's final paycheck towards any outstanding loan balance. Missouri law does not expressly address whether an employer may legally withhold and apply an employee's final paycheck toward the unpaid balance of an employer loan to an employee if doing so would reduce the employee's final wage rate below minimum wage. However, the Missouri Department of Labor (DOL) website has indicated that deductions for loans "can be made from an employee's wages as long as the deductions do not take the employee's wages below the required minimum hourly wage rate." In contrast, Federal law allows an employer to withhold final wages to repay a loan made for the employee's benefit even if doing so would reduce the final wages below minimum wage.

At the request of the Lewis Rice Labor & Employment Practice Group, the Missouri DOL recently issued an opinion letter on this matter. That letter brings Missouri consistent with federal law.

The opinion letter from Michael Pritchett, General Counsel for the Missouri DOL, provides that the agency "will refer to interpretations of the federal Fair Labor Standards Act" for guidance and "will interpret the requirements of the Missouri Minimum Wage Law similarly" to federal law. Under federal law, as Pritchett noted, "an employer may deduct the outstanding loan balance (principal only) from the employee's final wages" when an "'employer loans money to an employee . . . all for the employee's benefit and at the employee's request, pursuant to a written agreement that allows the employer to withhold any unpaid balance on the loan from the employee's final wages . . .' even if this would reduce the employee's final pay below the minimum wage rate[.]" Notably, "interest on the loan . . . may not be deducted if that would reduce the employee's final pay below the minimum wage rate."

To assure compliance with applicable laws, employers should consult with an attorney and clearly document in writing any loan made to an employee. If you would like more information regarding agreements with employees or on other labor and employment issues, please contact an attorney in our Labor & Employment practice group for assistance.