Is it legal for an employer to allow an employee to work off a debt?

UPDATED: Oct 1, 2022

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Is it legal for an employer to allow an employee to work off a debt?

Can a employer in NJ for a small heating and air conditioning business, allow an employee who owes a debt, to work off the debt. Meaning the employee agrees to work X amount of hours at Y rate but will not receive a paycheck until the total hours have been accrued to pay off a debt to the employer? Is this legal? This information is related to the employer receiving a letter from the county child support enforcement agency, regarding the same employee, asking the employer what the employee is paid per week, and for the employee to withhold wages. Since the employee is not receiving a check until his debt has been worked off, can the employer notify the county child support enforcement agency there is no money to withhold because of the situation legally?

Asked on June 23, 2018 under Employment Labor Law, New Jersey


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

There are actually two different questions here:
1) Can an employee work off a debt to the employer? Yes, so long as they both (employer and employee) agree (preferably in writing) to the arrangement--neither one can force the other into the arrangement, but they may agree to it.
2) HOWEVER, the money that is being applied to the debt is still considered "pay" or "wages"--it is money the employee is earning (even if he is is using to pay down a debt) for working. As such, it may be garnished for child support, the same way it could be garnished if it was paid to the employee, then he immediately turned around and wrote  check back to the employer for his debt. The employee cannot get around his obligation or having his wages garnished by this arrangement: the government will consider that he is being paid wages equal to the amount being applied to his debt. 

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