Updated on April 19th, 2023
When it comes to paycheck deductions, employers are allowed to withhold money from employee wages only under certain conditions. These are the following:
- If state or federal law requires or allows an employer to make a paycheck deduction.
- If paycheck deduction is allowed, in writing. This includes the case of employees needing their insurance premiums covered or contributions made to their benefit plans. It can also include some other kind of deduction. This holds true as long as the deductions are not rebates on the wages of an employee.
- If paycheck deductions are covering contributions to health, welfare, or pensions, as stated in a union agreement.
While garnishing wages is legal under the Labor Code, employers are barred from discharging employees just because they threatened to garnish their wages. They are also not allowed to discharge employees if a judgment requires their wages to be garnished.
There are also special regulations put out by the Industrial Welfare Commission Orders. However, they are limited by certain court decisions. If employers want to deduct some amount of wages because they need cash, or equipment was lost or broken, there are restrictions.
The court decisions that have been ruled bar employers from taking offsets against employee wages in a major way. For example, when an employee leaves a company, employers are not allowed to ask for a balloon payment for employees to repay a debt. It would be especially egregious if an employer makes a paycheck deduction on the balloon payment.
Common Unlawful Paycheck Deductions
There are some popular payroll deductions employers are illegally making today. These include the following:
- Gratuities – Employers are not allowed to collect, take, or receive gratuities, even partially deduct from paycheck, that are meant for employees. They also cannot deduct paycheck any amount from an employee’s wages that are rightfully meant for an employee. The one caveat here is that restaurants are allowed to pool tips and then redistribute them to employees who wait tables.
- Photos – In the event of an employer requiring photos of applicants or employees, employers have to pay for it. Employment related photograph cost cannot be deducted from paycheck.
- Bond – In the event of an employer requiring a bond of applicants or employees, employers have to pay for it. The employer cannot make a paycheck deduction for bond cost.
- Uniforms – In the event of an employer requiring employees wear uniforms, employers have to pay for them. This would include the wearing of anything that has a unique design and color. The employer shall not make a paycheck deduction for employee’s uniform.
- Business Expenses – Employees can be reimbursed by their employer for any expenses or losses they had resulting from being discharged from their duties.
- Medical or Physical Exams – Employers are not allowed to withhold or make a paycheck deduction from employees or applicants for medical or physical exams. This cannot be a condition for gaining employment with an employer. Employees cannot be held liable for paying for any medical or physical exams required by any laws, regulations, or ordinances.
While unlawful paycheck deductions occurs, most employers are compliant of California’s Labor Codes
When are employers legally allowed to deduct from wages?
In California, employers can legally deduct from wages in these situations:
- Paycheck deductions that federal or state laws require employers to pay. These include income taxes and garnishments.
- Paycheck deductions that employees allowed in writing so that insurance premiums or medical mills could be covered. This is true provided that the deductions would not be considered rebates or deductions from wages.
- Paycheck deductions allowed by a union agreement, or some other kind of agreement, where health or pension-related payments are involved.
Can employers deduct from wages if employees lose or damage company property? What if employees lose company money?
No, employers are not allowed to deduct from wages in these situations. This is true if there is loss or damage of property, as well as if the loss of company money, were accidental. Company property being damaged or lost, along with company money being lost, is considered negligence. This is considered an inevitable aspect of business operations and a cost of doing business. You cannot be penalized for dropping a dish on the floor that breaks or be footed with the bill a customer left without paying. Employers are not allowed to take money out of an employee’s paycheck for these kinds of losses.
The IWC wage orders do mention an exception to this. Employers do have the right to take money out of an employee’s paycheck if loss or damage was intentional. Also, if “gross negligence” was involved, then it will be possible to make deductions as well. Employers can legally make paycheck deductions if they can prove that employees were lying, willing, and grossly negligent in losing or damaging something.
Merely accusing an employee of damaging or losing company property does not allow an employer to take money out of an employee’s paycheck. Doing so would be against the state’s labor code, as well as a number of court decisions. Additionally, the state’s Division of Labor Standards Enforcement (DLSE) doesn’t immediately assume employees are dishonest, intentional, or grossly negligent when property is lost of damaged. An employer would have to prove that this was the case.
Employers are not allowed to deduct wages from employees when employees did not authorize that in writing. Employers are also not allowed to make deductions if the law does not explicitly allow it. In certain situations, an employer may take money out of an employee’s paycheck. This may have been done unlawfully, meaning an employee was not found guilty of being dishonest or intentional with a loss or damage. If so, they will get that money back. Also, if you have stopped working for an employer who took money out of your paycheck wrongfully, you can also get back the waiting time penalty.
Can an employer do anything if there is a cash shortage in the cash register?
Yes, they can. If desired, employers can take actions to discipline an employee, including firing them. Also, employers can take employees to court to get back any damages or losses that occurred. The employer may not make a paycheck deduction for cash shortage.
Can an employer demand repayment of a loan after an employee quits?
Sometimes, an employee may have a written agreement with their employer for a loan. They may make a loan for $1,000 and then agree to have $100 taken out of their paycheck regularly, until the loan is repaid. However, an employee may quit, with an outstanding balance due. In such an event, an employee is barred from taking the remaining balance out of the employee’s final paycheck. While installment payments for a repayment plan are legally allowed, balloon payments are not. This also holds true in the event of an employee quitting. At the end of employment, an employer is only allowed to take one installment payment from the final paycheck.
Is an employer allowed to deduct wages from an employee’s paycheck if the employee comes to work late?
Yes, they are allowed to do that. However, paycheck deductions cannot be more than what wages would have been during a particular period. If someone shows up to work less than half an hour late, half an hour’s worth of wages can be deducted.
Can an employee do anything if an employer illegally deducts money from their paycheck?
Yes, they have two options. When an unlawful paycheck deduction occurs, an employee can either file a wage claim with the DLSE or they can sue their employer to get back the wages that were taken from them. Also, in the case of an employee no longer working for an employer, a claim for the wait time penalty can be pursued.
What steps must an employee follow after they have filed a wage claim?
The first step in filing a wage claim is to file it with a local office of the DLSE. Once that is done, a Deputy Labor Commission will take it on and ascertain how to move forward. They will look at the claim’s circumstances and take action accordingly. They may decide on refering to a conference, hearing, or dismissal for the claim.
When it is decided that there will be a conference, both parties will receive notifications in the mail. This notification will let them know the day, time, and location of the conference. The point of a conference is to figure out whether a claim is valid or not. Ideally, a claim will be resolved at a conference without a need to go to a hearing. In the event that a claim has been been resolved at a conference, there are two options. The claim will either go to a hearing or be dismissed because there was not enough evidence.
During a hearing, both parties and witnesses will be testifying under oath. The hearing will also be recorded. Once the hearing is completed, there will be an Order, Decision, or Award issued by the Labor Commissioner.
Once an Order, Decision, Award is issued, either the employer or employee have the right to appeal. A court of law will set up the appeal for a trial. During a trial, both the employer and employee will get a chance to bring forward evidence and witnesses. Any evidence provided previously will not be used by the court to determine a decision. When an employer appeals, the DLSE can represent the employee if they are unable to do so themselves.
When an employee prevails in a hearing and their employer will not pay or appeal an ODA, what can be done?
A situation that may come up is that an employee has gotten an ODA with no appeal, yet their employer won’t pay up. When this happens, the DLSE tells the court to enter it as a judgment against that employer. This will hold the same power as anything else a court would enter as a monetary judgment. To collect the judgment, you have two options. You can either attempt to collect it on your own or have the collected assigned to the DLSE.
What can employees do when employers retaliate against them when they object to wage deductions?
Sometimes, an employer may retaliate against an employer in some way. This could including firing an employee because that employee objected to a deduction they thought was illegal. Employers may also retaliate because an employee filed a claim with the Labor Commissioner, or just threatened to. In such an event, an employee is able to file a retaliation complain with the office of the Labor Commissioner. Alternatively, you would have the option to file a lawsuit and take your employer to court.
Brad Nakase, Attorney