What Are the Federal and State Laws Regarding Withholding Final Pay for Unreturned Company Property?

When an employee leaves without returning company equipment — like a laptop, monitor, or phone — it’s tempting to withhold their final paycheck until it’s returned. But is that legal? The answer depends on whether you’re looking at federal or state law.

Federal Law (FLSA)

Under the Fair Labor Standards Act (FLSA), employers must pay employees all earned wages, including final pay, on time. While the FLSA doesn’t specifically address unreturned property, it clearly states that deductions cannot reduce pay below minimum wage or violate overtime requirements.

In short: you can’t withhold final pay entirely, and any deduction must be legal, authorized, and not bring the employee's pay below minimum wage.

State Laws

State laws are often stricter than federal rules.

• In California, withholding any part of an employee’s final paycheck — even for unreturned property — is prohibited and can result in significant penalties.

• Massachusetts, Illinois, and New York also have wage laws that strongly favor the employee, and improper withholding can trigger wage claims.

• Some states such as West Virginia may allow limited deductions for unreturned property if the employee gave written consent, meets specific requirements and it doesn’t violate minimum wage laws.

Bottom line: Most states do not allow you to withhold final pay for missing equipment, and doing so can create legal risk.  Because laws vary from state to state, it’s essential to consult a qualified local legal professional to ensure your policies and actions comply with state regulations.

Conclusion

Withholding an employee’s final paycheck for unreturned company equipment may seem like a simple solution, but it can quickly become a legal liability. Federal law sets clear limits, and most states have even stricter protections for employees’ earned wages.

To avoid wage disputes, penalties, or compliance issues, employers should focus on proactive asset management — including clear return policies, proper documentation, and structured offboarding procedures. When equipment isn’t returned, handle it through internal processes or legal channels — not payroll.

Understanding the law is the first step to protecting both your assets and your business.

The insights provided herein are for informational purposes only and should not be construed as legal advice. The information is not exhaustive, and laws vary significantly by jurisdiction and specific circumstances. You should consult with a licensed attorney in your relevant jurisdiction for advice regarding your individual situation.