I posted this thread in the ESOP room, but perhaps someone in this room may know the answer:

Employer makes an employer contribution to an ESOP for an Employee. The contribution is subject to a vesting schedule.

The Employee's compensation plan states that the Employee is required to pay the cost of the employee's retirement benefits. The amount of the company's ESOP contribution is then deducted from the employee's pay.

Any thoughts on the legality of this?

My thought is: It's legality is questionable, but the devil is in the details.

It's possible that the employer's offer is to pay $X in salary, reduced by the amount contributed by the employer to the ESOP for the employee, in which case it's not really "payroll deduction." If the facts are as I've stated, one needs to check pertinent state employment law to make sure it's legal, but there should not be any ERISA or tax-qualification problems with this approach, or problems with any other Federal laws (assuming the "net" salary satisfies Federal minimum wage standards).