What Is an Advance Deduction?

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."

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.

A loan officer begins working for ZYX Mortgage Co. on Jan. 1. She is paid $500 on Jan. 15 and $500 on Feb. 1. These payments are draw payments. On Feb. 7, she earns $2,000 in commission. Her paycheck on Feb. 15 will be $1,000 because she had a $1,000 advance deduction ($500 plus $500). She has paid back her draw.

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 installments, and what happens to an unpaid balance remaining when the employee leaves the company."