Wage Deduction
Amounts subtracted from employee wages, strictly regulated in California with specific rules about what deductions are legal and illegal.
What Is a Wage Deduction?
A wage deduction is any amount subtracted from an employee's gross wages before they receive their net pay. California Labor Code Sections 221-224 strictly regulate what deductions employers can and cannot make from employee wages. Unlike many other states, California takes a highly protective stance, prohibiting most deductions that benefit the employer or result from business losses.
Understanding California's wage deduction rules is critical for employers. Illegal deductions can result in penalties, lawsuits, and claims under the Private Attorneys General Act (PAGA), even for seemingly reasonable business practices that would be legal in other states.
Legal Deductions in California
Mandatory Deductions
These deductions are required by law:
| Deduction | Legal Basis | Employee Control |
|---|---|---|
| Federal income tax | IRS regulations | Based on W-4 elections |
| California state tax | CA Franchise Tax Board | Based on DE-4 elections |
| Social Security (FICA) | Federal law | 6.2% of wages (up to cap) |
| Medicare | Federal law | 1.45% of wages |
| CA State Disability (SDI) | CA Unemployment Insurance Code | 1.1% of wages (2024) |
Court-Ordered Deductions
Employers must honor court orders:
| Order Type | Requirement |
|---|---|
| Child support | Must deduct per income withholding order |
| Spousal support | Must deduct per court order |
| Tax levies | IRS and state tax levies |
| Creditor garnishments | Per court judgment (with limits) |
| Bankruptcy orders | Per bankruptcy court direction |
Garnishment Limits
California limits how much can be garnished:
| Garnishment Type | Maximum Deduction |
|---|---|
| Consumer debt | Lesser of 25% of disposable earnings or amount exceeding 40x state minimum wage |
| Child/family support | Up to 50-65% of disposable earnings |
| Tax levies | Varies by order |
| Student loans | 15% of disposable earnings |
Voluntary Deductions (With Written Authorization)
Employees may authorize deductions for:
| Deduction Type | Requirements |
|---|---|
| Health insurance | Written authorization |
| Dental/vision insurance | Written authorization |
| Retirement contributions | Written authorization |
| Union dues | Written authorization |
| Life insurance | Written authorization |
| Charitable contributions | Written authorization |
| Savings/credit union | Written authorization |
Requirements for Valid Authorization:
- Must be in writing
- Must be signed by employee
- Must specify deduction amount or method
- Employee can revoke at any time
- Cannot be condition of employment
Illegal Deductions in California
Prohibited Employer Deductions
California prohibits deductions that shift business costs to employees:
| Prohibited Deduction | Why It's Illegal |
|---|---|
| Cash shortages | Business risk cannot be shifted to employee |
| Breakage or damage | Cost of doing business |
| Dishonored checks | Customer's bad check is employer's loss |
| Theft by third parties | Security is employer's responsibility |
| Tools and equipment | Required for work; employer must provide |
| Uniforms | If required, employer must pay |
| Spoilage | Business loss, not employee responsibility |
| Customer walkouts | Business risk |
The "Secret Wages" Prohibition
Labor Code Section 221 prohibits employers from collecting back any wages already paid:
- Cannot require kickbacks
- Cannot demand return of wages
- Cannot deduct from future wages to recover past payments
- Cannot make employee "pay back" bonuses (with limited exceptions)
Specific Examples of Illegal Deductions
Cash Register Shortages:
An employer cannot deduct register shortages from employee wages, even if:
- The employee was the only one using the register
- The employee signed an agreement authorizing the deduction
- The employee admits responsibility
Equipment Damage:
An employer cannot deduct for damaged or broken equipment, even if:
- The damage was due to employee negligence
- The damage was intentional (employer must seek other remedies)
- The employee signed a damage agreement
Uniform Costs:
If uniforms are required:
- Employer must provide without charge
- Employer must pay for cleaning/maintenance
- Cannot deduct uniform costs from wages
- Cannot require deposits for uniforms
Authorization Agreements
Valid Authorization Requirements
For voluntary deductions, authorization must:
| Element | Requirement |
|---|---|
| Written form | Not just verbal agreement |
| Signed by employee | Employee's signature required |
| Specific amount | Clear deduction amount or formula |
| Purpose stated | What deduction is for |
| Revocable | Employee can cancel at any time |
| Voluntary | Cannot be condition of employment |
Invalid Authorizations
Even with written authorization, these deductions remain illegal:
- Cash shortages
- Business losses
- Equipment damage
- Customer theft
- Breakage
- Work-related fines
- Any deduction that benefits employer and shifts business cost
Key Point: An employee cannot "waive" their right to full wages. Pre-signed agreements to deduct for shortages or damage are unenforceable in California.
Sample Voluntary Deduction Authorization
VOLUNTARY DEDUCTION AUTHORIZATION
Employee Name: _________________________
Employee ID: __________________________
I voluntarily authorize [Employer Name] to deduct the following
from my wages:
Deduction Type: _________________________
Amount: $_______ per pay period OR ___% of gross wages
I understand that:
- This authorization is completely voluntary
- I may revoke this authorization at any time with written notice
- This deduction is not a condition of my employment
- The revocation will be effective for the pay period following
my written notice
Employee Signature: _____________________ Date: ___________
Deductions from Final Pay
What Can Be Deducted from Final Pay
At termination, employers can deduct:
| Legal Deductions | Illegal Deductions |
|---|---|
| Mandatory taxes | Cash shortages |
| Court-ordered amounts | Equipment not returned |
| Pre-authorized voluntary deductions | Business losses |
| Properly documented salary advances (with limits) | Damages |
Equipment and Property Return
Regarding unreturned company property:
What employers CANNOT do:
- Deduct equipment value from final paycheck
- Withhold final pay until property returned
- Condition payment on return of property
What employers CAN do:
- Pursue civil action for recovery
- Report theft to police if appropriate
- Withhold final pay only if valid written agreement existed (and even then, it's risky)
Salary Advance Recovery
Employers may recover salary advances, but:
- Must have written agreement before advance
- Recovery cannot reduce wages below minimum wage
- Cannot recover more than permitted percentage per pay period
- Final pay recovery is limited
Common Compliance Mistakes
Mistake 1: Deducting for Shortages
Wrong: "Register was $50 short; deducted from cashier's paycheck"
Why illegal: Cash handling losses are business risks that cannot be transferred to employees.
Proper action: Investigate cause, provide training, or take appropriate disciplinary action if warranted.
Mistake 2: Charging for Uniforms
Wrong: "Deducted $75 for uniform from first paycheck"
Why illegal: Required uniforms must be provided at no cost to employees.
Proper action: Provide uniforms free; recover only through voluntary payroll deduction for optional items.
Mistake 3: Automatic Deductions for Damaged Equipment
Wrong: "Policy: Employees pay for broken dishes/equipment"
Why illegal: Breakage is a normal business expense; cannot be shifted to employees.
Proper action: Train employees properly; address excessive damage through performance management.
Mistake 4: Requiring Signed Deduction Agreements at Hire
Wrong: "All employees sign agreement authorizing shortage deductions"
Why illegal: Such agreements are unenforceable; cannot waive wage protections.
Proper action: Remove such agreements; train managers on California law.
Pay Stub Requirements for Deductions
Itemization Requirements
Every deduction must appear on the pay stub:
| Requirement | Details |
|---|---|
| Separate listing | Each deduction on its own line |
| Clear description | Identifies what the deduction is for |
| Accurate amount | Correct calculation |
| Running totals | Year-to-date where applicable |
Sample Deduction Section
DEDUCTIONS
---------------------------------------------------------------
Federal Income Tax $195.00
CA State Income Tax $78.00
Social Security (6.2%) $93.00
Medicare (1.45%) $21.75
CA SDI (1.1%) $16.50
Medical Insurance - Employee $150.00
Dental Insurance $25.00
401(k) Pre-Tax (5%) $75.00
Union Dues $45.00
---------------------------------------------------------------
TOTAL DEDUCTIONS $699.25
Enforcement and Penalties
Employee Remedies
Employees subject to illegal deductions can:
| Remedy | Description |
|---|---|
| File wage claim | With Division of Labor Standards Enforcement |
| File civil lawsuit | In Superior Court |
| File PAGA claim | Representative action |
| Report to Labor Commissioner | For investigation |
Employer Exposure
Illegal deductions can result in:
| Consequence | Amount/Details |
|---|---|
| Repayment of deductions | All illegally deducted amounts |
| Waiting time penalties | Up to 30 days wages (if affects final pay) |
| Wage statement penalties | $50-$100 per pay period |
| Interest | 10% per year |
| Attorney fees | If employee prevails |
| PAGA penalties | $100-$200 per employee per violation |
Deduction Compliance Checklist
Before Making Any Deduction
- Is this deduction required by law (taxes, court orders)?
- If voluntary, do we have written authorization?
- Is the authorization truly voluntary (not condition of employment)?
- Does the deduction benefit the employee (not shift business cost)?
- Will the employee still receive at least minimum wage after deduction?
- Is the deduction properly itemized on the pay stub?
Deductions to NEVER Make
- Cash register shortages
- Customer walkouts or bad checks
- Broken or damaged equipment
- Uniforms or required tools
- Loss from theft (by customers or others)
- Training costs
- Fines or penalties for work performance
- Cost of business licenses (if required for job)
Documentation Requirements
- Keep copies of all written authorizations
- Document court orders and garnishments
- Maintain payroll records for 3+ years
- Provide compliant itemized wage statements
- Record all changes to deduction authorizations
Frequently Asked Questions
Can I Deduct for Training if Employee Quits?
Generally no. Training costs are business expenses. Exceptions may exist for specific professional licensing in limited circumstances.
Can I Deduct for a Salary Advance?
Yes, if:
- Written agreement exists
- Employee consented before receiving advance
- Deduction doesn't reduce pay below minimum wage
- Deduction follows agreed-upon schedule
Can I Require Employees to Pay for Background Checks?
No for employees. Employers must pay for employment-related background checks.
What About Tips and Service Charges?
- Tips belong to employees; cannot deduct from wages
- Service charges may be handled differently per employer policy
- Tip pooling has specific rules
Can I Deduct for Personal Phone Use?
Generally not if deduction benefits employer or shifts business cost. Better approach: Have clear policy and address through performance management.
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