California Labor Code § 221 says that employers may not take back any wages already paid to an employee. These deductions are illegal, and employers who violate this section face civil and criminal penalties.
However, there are limited exceptions to Labor Code 221 that let employers deduct costs like health insurance.
The language of the statute reads that:
221. It shall be unlawful for any employer to collect or receive from an employee any part of wages theretofore paid by said employer to said employee.
What does California Labor Code 221 forbid?
California Labor Code 221 prohibits employers in the state from collecting or receiving an employee’s wages that have already been paid out.[1]
This means that an employer cannot withhold wages that the employee has earned for any of the following reasons:
- the employee negligently broke or damaged company property,
- the employee was responsible for an accidental cash shortage,
- customer returns may have cut into the worker’s commission pay,
- to penalize or discipline the employee,
- the employer overpaid the employee in a prior pay period,
- to account for a gratuity or tip left for the employee,
- to cover a bond required in the application process,
- to defray the costs of photographs required by the employer,
- to cover the costs of a uniform required by the employer,
- for any business expenses incurred by the employee, or
- to pay for a medical or physical examination that is a condition of employment.[2]
However, some important exceptions to these rules allow for some wage deductions.
What wage deductions can an employer make?
California employment law lets employers make certain deductions from an employee’s paycheck. These include:
- deductions required by state or federal law, like income tax deductions or wage garnishments,
- deductions for employer-provided healthcare insurance, if the employee expressly consented in a written agreement, and
- deductions stipulated in a collective bargaining agreement or a wage agreement, like for pension payments.[3]
Employers can also lower employees’ wages if the worker comes to work late. While these deductions generally have to be proportional to the time lost, employers can deduct a half-hour’s wage if a worker is late by less than 30 minutes.[4]
Wages can also be deducted for damage to company property that resulted from the worker’s gross negligence or an intentional act.
California employers can also deduct wages if their employees consent to the deduction.
What if I agree to the deduction?
If an employee consents to a setoff or wage deduction, then the employer can make it, so long as:
- the deduction does not bring the worker below the minimum wage,[5] or
- the deduction does not impact the worker’s final wages.[6]
How does this apply to my final paycheck?
No deductions are allowed against an employee’s final paycheck, even if the employee consented.
California law states that a worker’s unpaid wages are due and payable to the employee immediately after their discharge.[7] This final paycheck has to be free from any deductions or setoffs.[8] For public policy concerns, California state law exempts certain wages from garnishment by creditors. Case law applies this exemption to any part of wages owed to employers by their employees.[9]
Employers can face waiting time penalties for intentionally failing to pay these wages immediately.[10]
What can I do if my employer has made an unlawful deduction?
Employees who think that their employer has made an unlawful deduction from their wages can:
- file a wage claim with the Labor Commissioner’s Office at the California Division of Labor Standards Enforcement, or
- hire a law firm and file a wage and hour lawsuit in court.
These claims aim to recover:
- unpaid wages from the unlawful deduction, and
- waiting time penalties.[11]
If an employer retaliates against an employee who files a claim over unlawfully deducted wages, the employee can also file a retaliation claim or lawsuit.
Additional reading
For more in-depth information, refer to these scholarly articles:
- Wage Earner Plans: Wage Deduction Orders and the Employer’s Power to Discharge – B.C. Indus. & Com. L. Rev.
- Using Payroll Deduction to Shelter Individual Health Insurance from Income Tax – Health Services Research.
- May a State Legislature Prohibit State Political Subdivisions from Making Payroll Deductions for Political Activities? – Marquette Law Scholarly Commons.
- The Death and Life of the State and Local Tax Deduction – Tax Law Review.
- Deductions from Pay and The Wages Act – Business Law Review.
Legal References:
[1] California Labor Code 221 LAB.
[2] See California Labor Code 222.5, 351, 401, 2802, California Industrial Welfare Commission Wage Order No. 4-2001, California State Employees’ Association v. State of California, 198 Cal.App.3d 374 (1988), and Hudgins v. Neiman Marcus, 34 Cal.App.4th 1109 (1995).
[3] California Labor Code 224 LAB.
[4] California Labor Code 2928 LAB
[5] California Department of Industrial Relations Opinion Letter 1999.09.22-1 – Deductions for Overpayment of Wages.
[6] Barnhill v. Robert Saunders & Co., 125 Cal.App.3d 1 (1981).
[7] California Labor Code 201 LAB.
[8] Barnhill v. Robert Saunders. supra.
[9] Barnhill v. Robert Saunders, supra (California court of appeal stating that “Permitting appellant to reach respondent’s wages by setoff would let it accomplish what neither it nor any other creditor could do by attachment and would defeat the legislative policy underlying that exemption.”)
