Can You Deduct Pay From a Salaried Employee in California?

Deducting pay from a salaried employee in California is only legal in a short list of specific situations, and stepping outside that list can cost the employer far more than the deduction itself. The salary basis rule requires that an exempt employee receive their full predetermined salary for any week in which they perform any work, no matter how many hours or days they actually put in. As of January 1, 2026, that predetermined salary must be at least $70,304 per year to satisfy California’s exemption threshold.¹ Improper deductions can wipe out the exemption entirely and open the door to years of back overtime liability.

Why the Salary Basis Rule Restricts Deductions

California’s exemption framework has two prongs: a duties test and a salary basis test. The salary basis test requires a monthly salary equal to at least twice the state minimum wage for full-time (40-hour) employment.² With California’s 2026 minimum wage at $16.90 per hour, that comes to $70,304 per year.¹ The federal floor of $35,568 is not enough on its own.

The core promise of the salary basis rule is that the paycheck stays the same regardless of how the workweek shakes out. One hour of work or fifty, the amount doesn’t change. The predetermined salary cannot be reduced because of variations in the quality or quantity of work performed.³ Chipping away at that guarantee undermines the reason for treating the employee as exempt in the first place.

When You Can Deduct From a Salaried Employee’s Pay

The exceptions are specific and, in almost every case, require a full-day absence. These are the only safe categories for reducing an exempt employee’s salary.

Full-Day Personal Absences

An employer may deduct a full day’s salary when the employee is absent for an entire day for personal reasons unrelated to sickness or disability.⁴ The word “full” is doing real work here. If the employee checks a single work email, takes one call from a client, or performs any task that counts as work, it is not a full-day absence and no deduction is allowed.

Full-Day Sickness or Disability Absences

Deductions for full-day absences due to sickness or disability follow a tighter rule. The employer can make the deduction only if it maintains a bona fide paid leave plan and the employee either has not yet become eligible for that plan or has exhausted all available leave under it.⁴ An employer with a paid sick leave policy cannot dock pay for a sick day when the employee still has accrued leave available.

First and Last Week of Employment

When an exempt employee starts or leaves a job partway through a week, the employer may prorate salary for only the days actually worked.³ This is the one scenario where a partial-week deduction does not raise salary basis problems.

Unpaid FMLA Leave

Employers can make proportionate deductions, including partial-day deductions, when an exempt employee takes unpaid leave under the Family and Medical Leave Act. If an employee who normally works 40 hours uses four hours of unpaid FMLA leave, the employer can reduce that week’s salary by 10 percent.⁵ This is the only exception that allows partial-day salary reductions without jeopardizing exempt status.

Disciplinary Suspensions for Workplace Conduct

An employer may impose an unpaid suspension of one or more full days for serious violations of workplace conduct rules, such as policies against harassment, workplace violence, or drug and alcohol use. The deduction must be in full-day increments, and the policy must be in writing and distributed to all employees before the suspension occurs.⁶ This exception covers serious misconduct only. It does not cover performance problems or attendance issues.

Safety Violations of Major Significance

When an employee violates a safety rule that exists to prevent serious danger in the workplace, the employer may impose a pay penalty in any amount, not limited to full-day increments. Federal regulations give examples like rules against smoking in explosive plants, refineries, or mines.⁶ This is the most aggressive deduction tool available, but it applies only to the most dangerous workplace violations.

Jury Duty and Witness Fee Offsets

An employer cannot deduct pay when an exempt employee misses work for jury duty or to serve as a witness. The employer can, however, offset the salary owed for that week by any jury or witness fees the employee received.⁷ The employee still receives at least full salary for the week once the fee and the employer’s payment are combined.

Deductions That Are Never Allowed

Outside those narrow exceptions, virtually any reduction to an exempt employee’s predetermined salary violates California law. Labor Code section 221 flatly prohibits employers from collecting back any portion of wages already paid.⁸ A few specific deductions trip employers up repeatedly.

Partial-Day Absences

This is where most violations happen. If an exempt employee works any part of a day, they must be paid for the entire day. The employer can require the employee to use accrued vacation or PTO to cover the missing hours, but the salary itself cannot be reduced.⁹ Unpaid FMLA leave is the only exception.

Work Quality or Quantity

An employer cannot dock pay because an exempt employee missed a sales target, turned in subpar work, or had a slow week. The prohibition on deductions tied to quality or quantity of work is fundamental to the salary basis concept.³ Performance issues belong in the disciplinary process, not the paycheck.

Business Closures and Lack of Work

When the office closes for a holiday, shuts down due to weather, or simply does not have enough work, the employer absorbs the cost. An exempt employee who is ready and willing to work cannot have their salary reduced because no work is available.⁹ A snow day that closes the building is the employer’s problem.

Business Operating Costs

Cash register shortages, broken equipment, customer chargebacks, and uniform expenses cannot be charged against an exempt employee’s salary unless the loss resulted from the employee’s dishonest or deliberate act. California takes a hard line on employer attempts to shift routine business losses to workers.

Mandatory Withholdings Are a Separate Category

Court-ordered child support, creditor garnishments, IRS wage levies, and Franchise Tax Board earnings withholding orders are not the same as voluntary employer deductions. They are required by law and override the salary basis rule.¹⁰ Employers must comply with these orders regardless of the employee’s exempt status, and doing so does not put the exemption at risk.

What It Costs to Get This Wrong

When improper deductions rise to an “actual practice” rather than an isolated mistake, the consequences pile up quickly.

Loss of Exempt Status and Back Overtime

The most damaging outcome is reclassification. If the pattern of deductions shows the employer never truly intended to pay on a salary basis, affected employees are treated as non-exempt and entitled to overtime for the entire period the misclassification lasted. In California, overtime kicks in after eight hours in a day and after 40 hours in a week at one-and-a-half times the regular rate. Work beyond 12 hours in a day jumps to double time.¹¹ For a manager who routinely worked 50-hour weeks over several years, the back overtime bill adds up fast.

The statute of limitations for recovering unpaid wages under the California Labor Code is three years from each violation. Claims brought under the state’s Unfair Competition Law may reach back four years.

Waiting Time Penalties

If a reclassified employee is terminated or quits and does not receive all wages owed on time, California imposes waiting time penalties. The employee’s daily pay rate continues to accrue as a penalty for each day the wages remain unpaid, up to 30 days.

Liquidated Damages Under Federal Law

When a reclassified employee sues under the federal Fair Labor Standards Act, the court can award liquidated damages equal to the full amount of unpaid back wages, effectively doubling the employer’s liability. Employers can avoid liquidated damages only by proving they acted in good faith and had reasonable grounds for believing the deductions were lawful.

The Safe Harbor Every Employer Should Use

Even when an improper deduction happens, employers can prevent it from blowing up the exemption for their entire workforce. Federal regulations provide a safe harbor with four elements:¹²

A clearly communicated written policy prohibiting improper pay deductions, distributed at hire or published in the employee handbook.
A complaint mechanism employees can use to report improper deductions.
Prompt reimbursement when an improper deduction is identified.
A good-faith commitment to comply going forward.

If all four elements are in place, the exemption survives. The safe harbor fails only if the employer willfully keeps making improper deductions after employees complain. Without this protection, a single payroll mistake by one manager can reclassify an entire job classification as non-exempt.¹²

How to Recover Improperly Deducted Pay

An employee whose salary has been improperly docked can file a wage claim through the California Labor Commissioner’s Office, which operates as the Division of Labor Standards Enforcement (DLSE). The process starts with DLSE Form 1, the Initial Report or Claim.¹³ It can be submitted online, by mail, or in person at a local DLSE office.¹⁴ Pay stubs, time records, and any written communication about the deductions should be gathered before filing. The three-year statute of limitations means these claims should not sit.

Retaliation Protections

California law prohibits employers from firing, demoting, suspending, or otherwise retaliating against an employee for filing a wage claim or making an oral complaint about unpaid wages. If the employer takes any adverse action within 90 days of the complaint, the law creates a rebuttable presumption that the action was retaliatory, shifting the burden to the employer to prove a legitimate reason. An employer found to have retaliated faces a civil penalty of up to $10,000 per employee per violation, on top of reinstating the employee and reimbursing lost wages.¹⁵

1
California Department of Industrial Relations. California Minimum Wage Increase to $16.90 Per Hour on January 1, 2026
2
California Legislative Information. California Code LAB 515 – Exemptions From Overtime
3
U.S. Department of Labor. Fact Sheet 17G – Salary Basis Requirement and the Part 541 Exemptions Under the Fair Labor Standards Act
4
Department of Industrial Relations. DLSE Opinion Letter – Deductions for Partial and Full Day Absences of Exempt Employees
5
eCFR. 29 CFR 541.602 – Salary Basis
6
U.S. Department of Labor. FLSA Overtime Security Advisor
7
U.S. Department of Labor. FLSA Overtime Security Advisor
8
California Legislative Information. California Code LAB 221 – Collection of Wages Previously Paid
9
U.S. Department of Labor. FLSA Overtime Security Advisor
10
Internal Revenue Service. Information About Wage Levies
11
California Legislative Information. California Labor Code 510 – Overtime Compensation
12
eCFR. 29 CFR 541.603 – Effect of Improper Deductions From Salary
13
Department of Industrial Relations. Division of Labor Standards Enforcement – Initial Report or Claim (DLSE Form 1)
14
Department of Industrial Relations. Instructions for Filing a Wage Claim
15
California Legislative Information. California Labor Code 98.6 – Retaliation Protections