What Is an Advance Deduction?

Written by e.m. rawes | 13/05/2017
What Is an Advance Deduction?
When you see an advance deduction on your paycheck, you are paying back money that was advanced to you. (money in hand image by Bruce MacQueen from Fotolia.com)

An advance deduction is an amount subtracted from your paycheck for money that was previously advanced to you. SRB Education Solutions describes the manner in which an advance deduction works as "a special programming cycle of give one pay period and take back the next pay period."

Jobs Where Advance Deduction is Common

What Is an Advance Deduction?
Salesmen are often paid a draw. They have to pay that draw back through an advance deduction. (salesman with black leather boot image by Lev Dolgatshjov from Fotolia.com)

Retail clerks, loan officers or any sales job that uses a draw will also use an advance deduction. A draw is a safety net for those who are compensated by commission only and have no true base salary. The draw is a guaranteed amount of money that will be paid to the salesman if he does not earn any commission or if he earns less commission that the draw amount. Once the commission earned by the salesman exceeds the draw amount, he must begin to pay back the draw. This is where the advance deduction comes into play.

Sometimes an advance deduction can be seen on the paychecks of military personnel, secretaries, administrative assistants or other jobs where advances are common.

Example of Advance Deduction

What Is an Advance Deduction?
After you pay back the draw, you can keep the remaining commission. (calculator #4 image by Adam Borkowski from Fotolia.com)

A loan officer begins working for ZYX Mortgage Co. on Jan. 1. She is paid £325 on Jan. 15 and £325 on Feb. 1. These payments are draw payments. On Feb. 7, she earns £1,300 in commission. Her paycheck on Feb. 15 will be £650 because she had a £650 advance deduction (£325 plus $500). She has paid back her draw.

Advance Deduction Requirements

What Is an Advance Deduction?
Employers must have the terms of the agreement in writing. (real estate contract image by Keith Frith from Fotolia.com)

The Fair Labor Standards Act allows the advance deduction but requires employers to treat the occasion as a bank would. According to the Texas Workforce Commission, this means employers must place, in writing, the terms of the situation "listing all the particulars of the transaction, such as amount loaned or advanced, date of transaction, full name and Social Security number of the employee, the amount and frequency of repayment instalments, and what happens to an unpaid balance remaining when the employee leaves the company."

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