If an employee quits but has an outstanding loan owed to the company, can it be deducted from the employee’s final pay?

The short answer is no. An employer cannot deduct from an employee’s final paycheck any amount representing the unpaid balance of a debt owed by the employee.

In California, wage deductions from final pay are highly regulated. An employer can lawfully make certain deductions from wages, including health insurance premiums and garnishments, but there are strict limitations on other deductions.

California Labor Code Section 221 states it is “unlawful for any employer to collect or receive from an employee any part of wage theretofore paid by said employer to said employee.” This means an employer cannot take back wages already paid to an employee.