All deductions from an employee’s wages will be made in accordance with applicable law and, when required, the employee’s consent. Deductions may be made from an employee’s wages for Social Security taxes, federal and state income taxes, child support, garnishment, and assignment of wages, as applicable.
Employees will be notified of deductions due to court orders, such as child support or garnishments, in accordance with such orders.
Deductions not taken for any pay period may be carried over to succeeding pay periods and deducted from the wages due in the succeeding pay period to the extent allowed by law.
Employees who object to any deduction should contact [Human Resources designee]. [Company Name] will promptly correct any deductions made in error or not permitted by applicable law.
Employees must provide consent in writing for the following deductions to be taken by the employer from his/her wages:
- Payment of group health insurance
- Contributions to a retirement plan
- Repayment of purchases made on credit from the company
- Repayment of payroll advances and/or overpayments
- Educational loans
Employees are required to complete all applicable forms necessary for deductions as may be required by law; such forms include the federal W-4. If an employee does not complete a form, e.g., the federal W-4, deductions will be made in accordance with applicable law.
Exempt Employees
[Company] does not make deductions that are inconsistent with maintaining an employee’s exempt status. In addition to the permissble deductions listed above, [Company] is permitted to make the following deductions for exempt employees:
- When an exempt employee performs no work in a week.
- When an exempt employee is absent from work for one or more full days for personal reasons that are not related to sickness or accident.
- When an exempt employee is absent from work for one or more full days due to sickness or disability, if the deduction is made in accordance with [Company’s] policy of providing compensation for salary lost due to illness or disability.
- For days not worked during the exempt employee’s first and final weeks of employment.
- For time taken off under the Family and Medical Leave Act or the California Family Rights Act, even if less than a full day is missed.
- To offset amounts exempt employees receive as jury or witness fees.
- For time off because of a disciplinary suspension only if the suspension is for a full week or more.
No deduction from an employee’s wages for any period shall cause the employee’s wages for any such period to be less than the wage required to be paid by the company pursuant to applicable law.
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
Examples of improper deductions include:
- Any deductions from the employee’s compensation for absences caused by the company or by the operating requirements of the business
- If the employee is ready, willing, and able to work, any deductions made for time when work is not available
- Any deduction for a partial-day absence, such as attending a parent-teacher conference
- Deducting three days of pay because the employee was absent from work for jury duty, rather than merely offsetting any amount received as payment for the jury duty
Tips and Considerations
- California’s Labor Code prohibits employers from making “self-help” deductions, even for an overpayment of wages to an employee. An employer may deduct money from an employee’s wages when the law permits such deductions (e.g., for FICA; where the employer can prove dishonesty, willful misconduct, or gross negligence on the part of the employee caused by the loss, damage, or shortage; or if the deduction is authorized in writing and conveyed to a third party for the benefit of the employee (e.g., union dues, health insurance premium). Under all other circumstances, an employer may garnish the employee’s wages, but must follow California law on garnishment and attachment, just as any other debtor would.
- Fair Labor Standards Act (FLSA). This federal law generally governs the payment of wages to most employees. Exempt employees are to be paid a “salary.” An employee is not paid on a salary basis if deductions from the salary are made for absences occasioned by the employer or by the operating requirements of the businesses. If the employee is ready, willing, and able to work, deductions may not be made for time when work is not available. Improper deductions can cause exempt employees to be entitled to overtime.
- Improper deductions from exempt employees’ pay. Improper deductions that can cause an exempt employee to be entitled to overtime under the FLSA include deductions from pay for a partial-day absence to attend a parent-teacher conference; deduction of a day of pay because of the employer’s closing due to inclement weather or lack of work; deduction of three days of pay because the employee was absent from work for jury duty, rather than merely offsetting any amount received as payment for the jury duty; or deduction for a two-day absence due to a minor illness when the employer does not have a bona fide plan, policy, or practice of providing wage replacement benefits for these types of absences.
- Proper deductions from exempt employees’ pay. Under California law, which is stricter than the FLSA, employers may make additional deductions to exempt employees’ pay without affecting their exempt status. Permitted deductions include: when an exempt employee performs no work in a week; when an exempt employee is absent from work for one or more full days for personal reasons that are not related to sickness or accident; when an exempt employee is absent from work for one or more full days due to sickness or disability, if the deduction is made in accordance with the employer’s policy of providing compensation for salary lost due to illness or disability (if the employer does not have such a policy, an employer can deduct for illness only if the absence exceeds one week); for days not worked during the exempt employee’s first and final weeks of employment; for time taken off under the Family and Medical Leave Act or the California Family Rights Act, even if less than a full day is missed; to offset amounts exempt employees receive as jury or witness fees; and for time off because of a disciplinary suspension only if the suspension is for a full week or more.
Proper deductions from exempt employees under the FLSA include deductions for an absence from work for one or more full days for personal reasons, other than sickness or disability; deductions for an absence from work for one or more full days due to sickness or disability if the deductions are made under a bona fide plan, policy, or practice of providing wage replacement benefits for these types of absences; deductions to offset any amounts received as payment for jury fees, witness fees, or military pay; deductions for penalties imposed in good faith for violating safety rules of “major significance”; unpaid disciplinary suspension of one or more full days imposed in good faith for violations of workplace conduct rules; proportionate adjustments of part of an employee’s full salary time actually worked in the first and last weeks of employment; and deductions for unpaid leave taken pursuant to the Family and Medical Leave Act or the California Family Rights Act. - Safe harbor. A “safe harbor” exists that will keep an exempt employee under the FLSA from being classified as not exempt even when improper deductions are made. The exemption will not be lost if the employer has a “clearly communicated” policy prohibiting improper deductions, which includes a complaint mechanism; reimburses employees for any improper deductions; and makes a good-faith commitment to comply in the future. Evidence of a “clearly communicated policy” is a written policy that is distributed to employees before the improper pay deductions by providing a copy of the policy to employees at the time of hire; placing the policy in an employee handbook; or placing the policy on the employer’s intranet.
- Court orders. Failure to make deductions in accordance with court orders, such as child support or garnishments, may cause the employer to become liable for the amount not deducted.
- Child support. While child support deductions are similar to garnishment, there may be some differences. As an example, child support payments may need to be deducted before a garnishment by a creditor. Additionally, the amount subject to a child support deduction may vary greatly from the amount subject to garnishment.
- Garnishment. There are a growing number of statutes, both state and federal, that permit garnishment. The California Labor Code also prohibits an employer from taking any action against an employee because of a garnishment.
- Taxes. Employers are required by law to make tax deductions from an employee’s wages based on instructions from the employee. As an example, each employee is required to complete a W-4 form for withholding federal income taxes. If an employee fails to complete a W-4, your policy should state that you will withhold in accordance with applicable federal law, which generally requires withholding as if the individual were single with no dependents.
- Payroll advances and loans. If your company makes loans or payroll advances to employees, coordinate that policy with your policy concerning payroll deductions. As an example, you may want to require the employee to repay any advance through payroll deductions, and the advance deduction may need to be placed ahead of benefit deductions. Generally, you should obtain written consent from employees to deduct payroll advances or loans from their paychecks.
- Assignment of wages. Some states, including California, permit an employee to make an assignment of his or her wages. Assignment of wages works just like a garnishment, but instead of a court order requiring the payment of money to a creditor, the employee simply makes a contractual agreement with the creditor that the money is to be paid directly by the employer to the creditor. Consider whether you will comply with such a request. Moreover, you will need to consult with counsel concerning applicable state law that may require you to comply or to ignore such an agreement.
- Charitable contributions. Employers often permit employees to use payroll deductions to donate a portion of their wages to charity. Cover this topic in your personnel manual if you follow this practice. Keep in mind that such a practice can permit a labor organization to require that payroll deductions be made for union dues.
- Written consent. Generally, your policy should provide for written consent for routine deductions as part of the package of material completed upon hiring. Subsequently, for any specific deduction, you should again obtain written permission to deduct money from an employee’s paycheck. For example, if you make a specific loan to an employee, grant a particular payroll advance, or permit a particular purchase, each of these transactions should be documented separately.
- Coordination with other policies. There are a variety of policies that must be coordinated with your payroll deductions. These include benefits, payroll advances, purchases from the company, check cashing, garnishment, wage assignments, and the like. Be certain that you have considered all policies that may potentially interact with your deductions from employees’ paychecks.