My California employer recently switched payroll companies, and they made a big mistake on all of the paychecks. For a couple of payroll periods, they paid all of us for an extra ten hours of work, which resulted in a pre-tax overpayment to me of about $500. The company just told all of us that it's going to correct the error by withholding the whole amount it overpaid from our next paycheck. Can they do this?
In California, the answer is no. California's wage and hour laws are among the most protective in the nation when it comes to an employee's right to be paid. The Golden State has very strict rules about what an employer can withhold from an employee's paycheck. Beyond basic tax withholding, wage garnishments, and voluntary contributions (for example, to a retirement account or to pay for health insurance), very few deductions are allowed.
California doesn't allow employers to engage in what the law calls "self-help" when it comes to paychecks. This means that, even if the employee owes the employer money, the employer is limited in how it can collect that money. The law allows an employer to withhold a set amount per paycheck if the employer and employee agree to the withholding, in writing. For example, if you asked for a payroll advance of $1,000, and you signed a written agreement that your employer could take $100 out of your next ten paychecks to pay itself back, that would be legal (as long as the deduction didn't bring your hourly earnings below the minimum wage).
However, your employer couldn't simply start taking these deductions without a written agreement. This is true even though everyone agrees that you borrowed the money. That you owe your employer money doesn't justify an employer taking it back out of wages you have earned. California law views the money you earned and the money you owe as entirely separate: An employer can't reach into your wages to pay back the debt, unless you agree to it.
The same rule applies in your situation. If a California employer accidentally overpays employees, it cannot simply withhold that amount from a later paycheck. Like the advance example above, this is true even though you were paid too much, and that money rightfully belonged to your employer. In this situation, an employer has the right to sue you to get its money back, then garnish your wages for it if it wins in court. It also has the right to ask you to sign a written agreement allowing the deduction from your wages. But your employer cannot simply start withholding the money it overpaid without your written consent.