An employer can lawfully withhold amounts from an employee’s wages only: (1) when required or empowered to do so by state or federal law, or (2) when a deduction is expressly authorized in writing by the employee to cover insurance premiums, benefit plan contributions or other deductions not amounting to a rebate on the employee’s wages, or (3) when a deduction to cover health, welfare, or pension contributions is expressly authorized by a wage or collective bargaining agreement. Labor Code Sections 221 and 224. Although a wage garnishment is a lawful deduction from wages under Labor Code section 224, an employer cannot discharge an employee because a garnishment of wages has been threatened or if the employee’s wages have been subjected to a garnishment for the payment of one judgment. Labor Code Section 2929(a) (See How to file a discrimination complaint)
The ability of an employer to deduct amounts from an employee’s wages due to a cash shortage, breakage, or loss of equipment is specifically regulated by the Industrial Welfare Commission Orders and limited by court decisions. (Kerr’s Catering v. Department of Industrial Relations (1962) 56 Cal.2d 319). In addition, there have been several court decisions that significantly restrict an employer’s ability to take an offset against an employee’s wages. Barnhill v. Sanders (1981) 125 Cal.App.3d 1, (Balloon payment on separation of employment to repay employee’s debt to employer is an unlawful deduction even where the employee authorized such payment in writing); CSEA v. State of California (1988) 198 Cal.App.3d 374 (Unlawful to deduct from current payroll for past salary advances that were in error); Hudgins v. Nieman Marcus (1995) 34 Cal.App.4th 1109 (Deductions for unidentified returns from commission sales unlawful.)
Some common payroll deductions often made by employers that are unlawful include:
Gratuities. An employer cannot collect, take, or receive any gratuity or part thereof given or left for an employee, or deduct any amount from wages due an employee on account of a gratuity given or left for an employee. Labor Code Section 351 However, a restaurant may have a policy allowing for tip pooling/sharing among employees who provide direct table service to customers.
Photographs. If an employer requires a photograph of an applicant or employee, the employer must pay the cost of the photograph. Labor Code Section 401
Bond. If an employer requires a bond of an applicant or employee, the employer must pay the cost of the bond. Labor Code Section 401
Uniforms. If an employer requires that an employee wear a uniform, the employer must pay the cost of the uniform. Labor Code Section 2802, Industrial Welfare Commission Orders, Section 9. The term “uniform” includes wearing apparel and accessories of distinctive design and color.
Business Expenses. An employee is entitled to be reimbursed by his or her employer for all expenses or losses incurred in the direct consequence of the discharge of the employee’s work duties. Labor Code Section 2802
Medical or Physical Examinations. An employer may not withhold or deduct from the wages of any employee or require any prospective employee or applicant for employment to pay for any pre-employment medical or physical examination taken as a condition of employment, nor may an employer withhold or deduct from the wages of any employee, or require any employee to pay for any medical or physical examination required by any federal or state law or regulation, or local ordinance. Labor Code Section 222.5
1. Q. What can my employer lawfully deduct from my wages?
A. Under California law, an employer may lawfully deduct the following from an employee’s wages:
- Deductions that are required of the employer by federal or state law, such as income taxes or garnishments.
- Deductions expressly authorized in writing by the employee to cover insurance premiums, hospital or medical dues or other deductions not amounting to a rebate or deduction from the wage paid to the employee.
- Deductions authorized by a collective bargaining or wage agreement, specifically to cover health and welfare or pension payments.
2. Q. If I break or damage company property or lose company money while performing my job, can my employer deduct the cost/loss from my wages?
A. No, your employer cannot legally make such a deduction from your wages if, by reason of mistake or accident a cash shortage, breakage, or loss of company property/equipment occurs. The California courts have held that losses occurring without any fault on the part of the employee or that are merely the result of simple negligence are inevitable in almost any business operation and thus, the employer must bear such losses as a cost of doing business. For example, if you accidentally drop a tray of dishes, take a bad check, or have a customer walkout without paying a check, your employer cannot deduct the loss from your paycheck.
There is an exception to the foregoing contained in the Industrial Welfare Commission Wage Orders that purports to provide the employer the right to deduct from an employee’s wages for any cash shortage, breakage or loss of equipment if the employer can show that the shortage, breakage or loss is caused by a dishonest or willful act, or by the employee’s gross negligence. What this means is that a deduction may be legal if the employer proves that the loss resulted from the employee’s dishonesty, willfulness, or grossly negligent act. Under this regulation, a simple accusation does not give the employer the right to make the deduction. The DLSE has cautioned that use of this deduction contained in the IWC regulations may, in fact, not comply with the provisions of the California Labor Code and various California Court decisions. Furthermore, DLSE does not automatically assume that an employee was dishonest, acted willfully or was grossly negligent when an employer asserts such as a justification for making a deduction from an employee’s wages to cover a shortage, breakage, or loss to property or equipment.
Labor Code Section 224 clearly prohibits any deduction from an employee’s wages which is not either authorized by the employee in writing or permitted by law, and any employer who resorts to self-help does so at its own risk as an objective test is applied to determine whether the loss was due to dishonesty, willfulness, or a grossly negligent act. If your employer makes such a deduction and it is later determined that you were not guilty of a dishonest or willful act, or grossly negligent, you would be entitled to recover the amount of the wages withheld. Additionally, if you no longer work for the employer who made the deduction and it’s decided that the deduction was wrongful, you may also be able to recover the waiting time penalty pursuant to Labor Code Section 203.
3. Q. What, if anything, can my employer do if I experience shortages in my cash drawer?
A. Your employer may subject you to disciplinary action, up to and including termination of employment. Additionally, your employer can bring an action in court to try to recover any damages and/or losses it has suffered.