California Labor Code section 221 prohibits employers from making any deductions from an employee’s wages. However, section 221 is a general rule and, we all know, every  general rule comes with exceptions. California Labor Code section 224 provides for four exceptions which allow your employers to make certain deductions from your paycheck.  They include:

• deductions authorized by federal or state law;
• deductions expressly authorized by employee  in writing for insurance premiums, hospital or medical dues;
• deductions to cover health and welfare or pension plan contributions that a collective bargaining or wage agreement expressly authorizes; and
• other deductions not amounting to a rebate or deduction from the standard wage arrived at by collective bargaining or pursuant to wage agreement or statute.

As you can see some of these exceptions are extremely narrow (e.g. insurance premiums, pension plan contribution, medical dues, etc) and some of them are pretty broad (e.g. deductions authorized by laws). To better understand how the section 224 is interpreted by California courts, consider the following examples:

Deductions authorized by law:

• Taxes: Your employer is authorized by federal and California law to deduct state and federal income taxes, social security taxes, and state disability insurance taxes.

• Wage garnishments:  Your employer is authorized to deduct wage garnishments  if you are a judgment debtor and your employer was served with a writ of execution by the levying officer. However, your employer may not keep the deductions and is  required to turn them over  to the levying officer. In general, wage garnishment deductions may not exceed 25% of your total earnings, unless the judgment is a support order).

• Meals and Lodging: Your employer is authorized by to deduct specified amounts from your minimum wage if such employer provides you with meals, lodging or other “facilities” furnished to you in addition to your wages. The employer is required to keep records of all costs associated with these deductions. If  your employer fails to do so,  no deductions are allowed.  In addition, before  making meals and lodging deductions from your wages, your employer needs to obtain your “specific and prior voluntary consent.” California State Restaurant Ass’n v. Whitlow, 58 CA3d 340, (1976). California Code of Regulations section 11000 sets maximum amounts for meals and lodging credits and sections 11010-11150 of the Code  set forth specific standards regulating  the quality of meals and lodging.

Illegal Deductions:

• Employee’s Debts: If you owe money to your employer and you quit or get fired, your employer  may not deduct from your final paycheck  the unpaid balance.  Phillips v. Gemini Moving Specialists, 63 CA4th 563, 572, (1998).  Under certain rare circumstances, an employer is allowed to make periodic deductions from your paycheck, but only if you acknowledge  the debt in writing and consent to deductions.

• Cash Shortage and Loss of Tools: If your work requires you to use a cash register, your employer may not reduce your wages to cover a cash shortage. Your employer also cannot request that you reimburse the shortage by forfeiting your tips or commissions. The same rule applies if you break or lose any of your employer’s tools or uniform. The only time your employer is allowed to demand that you pay for the cash shortage, loss or breakage of equipment is if you act willfully, dishonestly, or with the gross negligence.” 8 Cal.C.Regs. § 11010 et seq. In other words, if your cash register is short because you made a mistake, you are not responsible for the loss. In addition, mere allegations that you steal money are not sufficient for your employer to force you to pay for the shortage. Your boss needs to present clear evidence showing that you are dishonest or grossly negligent. Under California Labor Law, cash shortage, loss or breakage of equipment are considered to be business expenses that cannot be passed onto the employee. Prachasaisoradej v. Ralphs Grocery Co., Inc., 42 C4th at 238, See also DLSE Opinion Letters 1993.02.22–2 & 1994.01.27.

• Uniform: If your employer requires you to wear a uniform at work, the employer must provide you with the uniform and pay for its maintenance. But if your employer only requires you to wear basic clothing of unspecified design that is “usual and generally useable in the occupation,” then your employer does not have to pay for your clothing.

• Business Expenses: California Labor Code section 2802 requires your employer to reimburse you for all expenses or losses that you incurred “in the direct consequence of the discharge of your work duties.” The statute prohibits employers from passing the expenses related to their  business onto the employee. For example, if you use your personal vehicle for work, your employer, as a matter of law, must reimburse you for the cost of gas and mileage. Analogously, you are entitled to reimbursement for any travel expenses that you incurred while performing services for your employer, including meals, lodging, the cost of tolls, parking, rental vehicle, laundry, and etc.
  Keep in mind  that even if you are paid in commissions, you are still entitled to these reimbursements and your employer may not deduct business expenses from your commissions.

• Workers’ Compensation Costs: California Labor Code section 3751 prohibits employers from taking  “any deductions from the earnings of any employee, either directly or indirectly, to cover the whole or any part of the cost of (workers ‘) compensation … ”

• Deductions Against Commissions: Under California Labor law, commission is considered to be a wage, and as such no deductions can be made against commissions. However, in some cases, your employer may be allowed to make certain deductions. Consider the following examples.

If you receive both wages and sales commissions, your employer is allowed to make a chargeback against your commissions if those commissions were paid in advance and the sale later falls through. (e.g. merchandise returns). However, such deductions are possible only if you agree to them in writing. The “chargeback” deduction is lawful because “an advance commission by definition does not become a wage unless all conditions for performance have been satisfied.” Steinhebel v. Los Angeles Times Communications, 126 CA4th 696  (2005)

However,  your employer may not charge back commissions on returned merchandise sold by other employees or when the selling employee cannot be identified. The rational is simple – if your employer fails  to keep track of who sells what, you should not be responsible for  unidentified merchandise  returns. Hudgins v. Nieman Marcus Group, Inc. (1995) 34 CA4th 1109.

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As you can see California labor law is somewhat comprehensive when it comes to regulating wage deductions. However, a legal status of certain deductions remains to be  unresolved and has been the subject of  fierce  litigation.   If you feel like your employer makes unlawful deductions against your wages, it is important that you seek professional legal assistance. If you have questions regarding this article or other emplayment law related questions,  feel free to contact our  San Francisco employment law attorney.