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                                    Payroll Deductions

                                                                                         Overview

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.


Although a wage garnishment is a lawful deduction from wages under California law, 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.


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 law and limited by court decisions. In addition, there have been several court decisions that significantly restrict an employer's ability to take an offset against an employee's wages. 


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. A restaurant may, however, 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.

  • Bond.  If an employer requires a bond of an applicant or employee, the employer must pay the cost of the bond.

  • Uniforms.  If an employer requires that an employee wear a uniform, the employer must pay the cost of the uniform. 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.

  • 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. 


                                                                                                        Common FAQ:


Q:  If an employee breaks or damages company property or loses company money while performing their job, can the employer deduct the cost/loss from the employee's wages?

 A:  No, the employer cannot legally make such a deduction from the employee's wages if, by reason of mistake or accident a cash shortage, breakage, or loss of company property/equipment occurs. 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. Thus, the employer must bear such losses as a cost of doing business.

There is an exception to this general rule, however, that provides 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. This means 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. 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. California law 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.

Q:  What, if anything, can an employer do if the employee experiences a shortage in their cash drawer?

 A:  The employer may subject the employee to disciplinary action, up to and including termination of employment. Additionally, the employer can bring an action in court to try to recover any damages and/or losses it has suffered.


Q:  An employer loans an employee money, and per a written agreement takes money from each of the employee's paycheck as an installment payment on the loan, but the employee quits before the balance owed is paid. Can the employer deduct the outstanding loan balance from the employee's final paycheck?

A:  No. Although a California court has held that deductions for the periodic installment payments on a loan made to an employee by the employer are permissible when authorized in writing by the employee, the court also concluded that the balloon (lump sum) payment of the outstanding balance to be made at the time the employment relationship ends is not allowed notwithstanding the fact the employee has given his or her written consent to such a payment. When the employment relationship ends, the employer can only deduct the amount of one installment payment from the employee's final paycheck.

Q:  Can an employer deduct anything from an employee's paycheck if the employee comes to work late?

A:  Yes, the employer can deduct money from the employee's paycheck for coming to work late. The deduction shall not, however, exceed the proportionate wage that would have been earned during the time actually lost, but for a loss of time less than 30 minutes, a half hour's wage may be deducted. For example, if the employee earns $15.00/hour and comes to work 45 minutes late, the employer can deduct $11.25 from the employee's  paycheck. Furthermore, if the employee comes to work 5 minutes late, the employer can deduct $7.50.

Q:  What action can an employee take if the employer makes an illegal deduction from the employee's paycheck?

A:  The employee can either file a wage claim with the Division of Labor Standards Enforcement (the Labor Commissioner's Office), or file a lawsuit in court against the employer to recover the lost wages. Additionally, if the employee no longer works for this employer, the employee can make a claim for the "waiting time penalty."

Q:  What is the procedure that is followed after I file a wage claim?

A:  After a claim is completed and filed with a local office of the Division of Labor Standards Enforcement (DLSE), it will be assigned to a Deputy Labor Commissioner who will determine how best to proceed. Initially, the claim can be referral to a conference or hearing, or dismissed.

If the decision is to hold a conference, the parties will be notified by mail of the date, time and place of the conference. A conference is held to determine the validity of the claim, and to see if the claim can be resolved without a hearing. If the claim is not resolved at the conference, the matter is usually referred to a hearing or dismissed.

At the hearing the parties and witnesses testify under oath, and the proceeding is recorded. After the hearing, an Order, Decision, or Award (ODA) of the Labor Commissioner will be served on the parties.

Either party may appeal the ODA to a civil court of competent jurisdiction. The court will set the matter for trial, with each party having the opportunity to present evidence and witnesses. The evidence and testimony presented at the Labor Commissioner's hearing will not be the basis for the court's decision. In the case of an appeal by the employer, DLSE may represent an employee who is financially unable to afford counsel in the court proceeding.

Q:  What can I do if I prevail at the hearing and the employer doesn't pay or appeal the Order, Decision, or Award?

A:  When the Order, Decision, or Award (ODA) is in the employee's favor and there is no appeal, and the employer does not pay the ODA, the Division of Labor Standards Enforcement (DLSE) will have the court enter the ODA as a judgment against the employer. This judgment has the same force and effect as any other money judgment entered by the court. Consequently, the employee may either try to collect the judgment themselves or assign it to DLSE.

Q:  What action can an employee take if the employer retaliates against the employee because they objected to a deduction from their wages?

A:  If the employer discriminates or retaliates against the employee in any manner because the employee objected to what they believed to be an illegal deduction, or because the employee filed a claim or threaten to file a claim with the Labor Commissioner, the employee can file a discrimination-complaint with the Labor Commissioner's Office or file a lawsuit in court against the employer.


If you have any questions about payroll deductions, please contact me for a FREE confidential consultation at (916) 333-4653 or Stephen_Fiegel_Esq@comcast.net.

 

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