Authorized deduction from H1b wages are governed by 20 CFR 655.731.
1. What Are Authorized Deductions?
For an employer to deduct money from an H-1B worker’s wages while complying with labor laws, the deduction must fall into one of three categories:
(i) Legally Required Deductions
- Taxes (e.g., Income Tax, FICA, Social Security)
- Court-ordered deductions (e.g., wage garnishments, child support)
(ii) Employer-Authorized Deductions (If Customary and Reasonable)
- Deduction authorized by a collective bargaining agreement or if common in the industry.
- Examples:
- Union dues
- Health insurance premiums
- Retirement fund contributions
- Cannot be used to recover employer business expenses (like attorney fees, LCA/H-1B petition costs). But it is my opinion that, if an employee requests for H1b premium processing fees for their own benefit then H1b beneficiary can bear that cost.
- Must be disclosed to the employee before employment starts and applied to both U.S. and H-1B workers equally.
(iii) Voluntary Deductions for Employee Benefit
- Deduction must be voluntary and in writing.
- Cannot be a condition of employment (i.e., an employer cannot force an employee to accept a salary with pre-set deductions).
- Examples:
- Housing and food allowances (if they primarily benefit the employee).
- Airfare and relocation costs (only under specific conditions).
2. Key Exception: Deducting the Cost of Travel to the U.S.
- Employers cannot deduct most business-related expenses from an H-1B worker’s salary.
- However, 20 CFR 655.731(c)(9)(iii)(C) explicitly states that initial transportation to the U.S. is not considered a business expense.
- This means that an employer can legally deduct the cost of an H-1B worker’s flight to the U.S. from their wages.
3. Additional Limitations on Deductions
- The deduction must not exceed the fair market value or actual cost (whichever is lower).
- Cannot exceed 25% of the employee’s disposable earnings per week (as per the Consumer Credit Protection Act).
- Employer must document the cost of any deducted expense.
Here we would like to point to a US Department of Labor (DOL) administrative ruling which is interesting. Here the DOL ruled attorney fees can be deducted as far as the it is not deducted from base wages.
In the above case decided by DOL, Woodmen Life, an employer, deducted $4,575 in attorney fees from an H-1B worker’s final paycheck, which included unused vacation pay.
- The DOL’s Wage and Hour Division (WHD) claimed this was a violation, arguing that:
- Attorney fees cannot be deducted under 20 CFR 655.731(c)(9).
- The deduction unfairly treated the H-1B employee differently from U.S. workers.
- Employer’s Argument (Woodmen Life)
- The deduction did not lower the employee’s pay below the required wage.
- Other U.S. workers with tuition repayment agreements had similar deductions from their final paychecks.
- The deduction came from vacation pay, not regular wages, and thus should be allowed.
- DOL’s Argument
- Attorney fees for H-1B processing are an employer’s business expense and cannot be deducted from wages.
- Even if the deduction came from vacation pay, it treated the H-1B employee differently from U.S. workers, violating benefits equality rules.
- The deduction should be reversed, and the employer should repay the deducted amount to the employee.
- Court’s Ruling
- Employer Won: The court ruled that attorney fees can be deducted from benefits (such as vacation pay) as long as:
- The deduction does not reduce the employee’s required wage.
- The employer treats H-1B and U.S. workers equally.
- The judge dismissed the DOL’s claim, stating that the employer did not violate wage rules.
- Employer Won: The court ruled that attorney fees can be deducted from benefits (such as vacation pay) as long as:
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