Deductions from Wages

An employer's ability to make deductions from wages is limited to:

Deductions the employer is required or empowered to make by state or federal law;
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 standard wage; and
Deductions to cover health and welfare or pension plan contributions expressly authorized by a collective bargaining or wage agreement.1

You should not make a payroll deduction unless a state or federal law clearly provides authorization for you to do so. For example, you cannot collect previously paid wages from an employee;2 this prevents the fraud usually associated with kickbacks.3 It is also unlawful for you to withhold any part of a collectively bargained wage with intent to defraud an employee, a competitor or any other person;69 this prevents unlawful private agreements from nullifying collective bargaining contracts.4

The law also prohibits charging an employee, or deducting from their wages, for medical examinations required for employment or necessitated by law.5 You cannot make a deduction of any type unless authorized by law or by the employee's written consent to cover medical plans or insurance.6 Secret payments from employees back to you also violate the Labor Code.7

Employers who fail to make agreed upon payments to a health or welfare fund, pension fund, vacation plan, or similar plan for the benefit of employees are guilty of a crime (felony if the amount unpaid is over $500).

It is also a crime for an employer to fail to remit withholdings from an employee’s wages that were made pursuant to state, local or federal law (such as payroll taxes).

For information on deductions from exempt employees’ salaries, see Deductions From an Exempt Employee’s Salary.