Paycheck Deduction – What’s Legal and What’s Not?

While it is tempting to make a paycheck deduction from an employee’s check for lost or broken equipment, mistakes or unreturned property, under California law, it is very difficult to do so outside of legally allowed deductions. It’s even tougher to make paycheck deductions from an employee’s final paycheck. This is a very tightly structured policy in California so let’s explore so you don’t get yourself in hot water.

Employers can lawfully deduct from employee’s paychecks only in the following circumstances:

• When required or empowered to do so by state or federal law. (think Child Support, Levies, etc).
• 401k, health insurance or supplemental insurance premiums where the employee has expressly authorized the deduction.
• Union paycheck deductions related to health, welfare or pension contributions authorized by a wage or collective bargaining agreement.

 Outside of these lawful paycheck deductions, it gets challenging. Let’s look at a few common examples:

 Loans and Advances
California allows deductions for periodic installment payments on loans or advances made to employees by the employer when authorized in writing by the employee. However, it is unlawful to withhold a lump sum or balloon payment from the last paycheck, whether there is an agreement in place or not. You can however deduct one installment from the last check, and collect the rest outside the employment relationship.

 Cash Shortage, Breakage or Loss of Equipment
As much as it is frustrating and expensive when employees break things or make big mistakes, an employer bears that responsibility for their employees and the results of their work for acts of simple negligence. An employer cannot legally make a deduction from an employee’s wages if, by reason of an employee’s mistake or accident, a cash shortage, breakage or loss of company property or equipment occurs.

Gross Negligence or Willful Acts
There is an exception in the case of a “willful act” or “gross negligence” on the part of the employee. An employer may make paycheck deductions for cash shortages, breakage or loss of equipment if the employer can demonstrably show evidence of such. This is a very difficult path to take so get advice before making any deductions related to will or gross negligent acts of your employee.

Unreturned Tools and Uniforms
According to the Industrial Welfare Commission, an employee can agree to a paycheck deduction from his/her last paycheck to cover the cost of tools, uniforms or other items you furnished that he/she did not return to you. However, based on decisions of the California Supreme Court and a California Court of Appeal, you cannot make deductions without proving theft or culpable negligence, even where the employee signed an agreement authorizing the deduction.

Uniforms or Tools Required for the Job
If uniforms or tools are required for the job, you may not charge the employee for the cost or deduct any amounts from paychecks. A couple exceptions: If employees make 2X minimum wage and are required to provide their own tools; or if an employee agrees in writing to have the cost of uniforms not returned when their employment ends, you may deduct the amount from their final check…as long as you can prove theft or culpable negligence.

Conclusion
Payroll deductions in California are challenging, and the State looks at it as if the employer is taking advantage of the employee since that employer holds their paycheck. Unfortunately, disputes and issues related to pay or problems that occur must be handled outside the employment arena.

Before you are ready to make deductions that doesn’t fit into the very narrow deductions authorized, contact Infinium HR before you act.