The U.S. Department of Labor (“DOL”) has recovered $213,000 in back wages for 1,028 foreign students who were employed at a plant owned by Hershey Co. The foreign students were placed at the plant as part of the State Department’s Summer Work Travel Program. The DOL reached an agreement to settle the matter with SHS Group, LP (the company that hired and placed the students), the Council for Educational Travel-USA (the entity that acted as the students’ sponsor), and Exel (the company that operated the facility at which the students worked).

The DOL investigated the plant in response to a complaint filed by the National Guestworker Alliance on behalf of 7 student workers.  The DOL found that these foreign students were not receiving minimum wage or overtime pay as a result of the “excessive housing costs” deducted from their pay.  In fact, the foreign students claimed they earned $1 per hour after deductions for their housing.

While the DOL found that the foreign students were not being paid properly, the regulations do, however, permit employers to deduct the “reasonable cost” of housing from employee paychecks.  In such situations, the employee may be paid partly in cash and partly in room and board.  The question of whether such deductions may be made, as well as how much money can be deducted from the employees’ pay, is quite subjective and has been left open to interpretation.  The general rule is that employers can deduct housing costs from employees’ pay if: (1) the deduction does not exceed the actual cost to the employer for the lodging; (2) housing is “customarily furnished” to employees; and (3) the employees’ acceptance of the housing is voluntary.

Employers should be careful that any deductions for housing expenses meet the three (3) criteria discussed above.  As illustrated by the DOL’s recovery on behalf of the foreign students, an employer can be subject to significant liability for any improper deductions.