Understanding Wage Deductions in California: A Guide for Employers

California wage and hour laws are among the most employee-protective in the nation, especially when it comes to wage deductions. Employers must proceed with extreme caution when deducting from employee paychecks, as even well-intentioned deductions can violate state labor laws and result in costly penalties.

At Centralize HR, we help employers navigate these complex rules with confidence and clarity.

What Deductions Are Permitted?

Under California law, employers may only deduct wages when authorized by:

• Federal or state law (e.g., income taxes, Social Security, SDI)
• Court orders (e.g., child support, wage garnishments)
• Employee-written authorization for specific, voluntary deductions (e.g., health insurance, retirement plans, union dues)
  (California Labor Code §224)

Deductions for time lost due to tardiness are also permitted, but only in proportion to actual work missed—and only for non-exempt employees.

While employers may be tempted to recover losses due to misconduct, such as theft or property damage, wage deductions for these reasons are not permitted unless there is a court judgment confirming willful misconduct. Even in cases involving dishonesty or gross negligence, recovery must be pursued through legal means. We strongly advise against unilateral deductions and recommend consulting HR or legal counsel before taking any action.

What Deductions Are Prohibited?

California strictly prohibits employers from deducting wages for:

• Cash drawer shortages, breakage, or damage to company property (even if suspected to be caused by the employee, unless proven through a court judgment)
• Uniforms, tools, or business-required equipment (employers must provide these at no cost under most circumstances)
• Tips or gratuities, which are the sole property of the employee
• Deductions from a final paycheck for unreturned property or damages, even with employee consent at the time of separation

Violations of these rules can result in serious consequences, including penalties under Labor Code §203 for failure to pay final wages promptly, and potential exposure to civil litigation.

Partner With Compliance Experts

Wage deductions may seem like a small detail—but they carry significant compliance risk. At Centralize HR, we support employers in implementing lawful payroll practices, training management, and maintaining bulletproof documentation.

Let us help you ensure your practices align with California Labor Code §§221–224 and current Division of Labor Standards Enforcement (DLSE) guidance. Contact us today to schedule a payroll compliance review.