Employers May Recover Wage Overpayments

Employers may occasionally overpay their employees based on an assumed amount of hours before the employees’ actual timesheets are submitted or processed.

Under such circumstances, may the employer recover the overpayment by taking a deduction from the next paycheck? In accordance with California law, the employers usually can’t make any deductions from their employees’ wages except for certain withholdings (such as taxes) or as authorized by the employees for medical or health benefits or pension plan contributions.

However, on November 25, 2008, the Department of Labor Standards Enforcement (DLSE) confirmed that employers may generally recover wage overpayments if they meet the following conditions:

(1) The deduction cannot cause the employee to earn less than the minimum wage. The deduction may not be taken if it would cause the employee to earn less than the minimum wage. The employer can only take an amount that would keep the employee earning at least minimum wage.

(2) The deduction must be expressly authorized by the employee in writing. According to Labor Code section 300, the DLSE has explained that only when the employee has specifically and voluntarily authorized the deduction in a written form before the deduction is taken, may the employer recover the overpayment. In addition, if the employee’s timesheet reflects fewer hours than he/she was actually paid, then only when the timesheet "expressly and voluntarily authorizes a specific prospective deduction," can it be qualified as a written authorization.
The deduction cannot be taken out of the employee’s final paycheck. The DLSE says that no deduction may be taken from the employee's final paycheck. In addition, under Labor Code section 203, if such a deduction is made, the employer can be liable for "waiting time" penalties of up to 30 days’ pay.