Employees are entitled to their wages—and they can’t be forced (or persuaded) to turn over tax refunds to an employer.
Recent case: Tata is an Indian auto manufacturer headquartered in Mumbai with operations in the United States, including California. It mainly employs Indian nationals who begin and end their careers in India.
Sometimes, Indian employees are temporarily assigned to jobs in California. When they are, they continue to receive their salaries in India, but also earn additional money to cover higher living expenses in the United States.
The company prepared the employees’ U.S. and state exemption forms and also their tax returns. In some cases, the exemptions were set so high that the employees would get tax refunds that went directly to Tata.
Several employees sued, alleging that under California law, they were entitled to receive their salaries minus only legitimate deductions. In effect, they argued that by keeping the tax refunds that were created by setting federal exemptions high, the company deprived them of some of their earnings when it kept the money.
The court agreed and said the case could go to trial. (Vedachalam, et al., v. Tata America, et al., No. 06-0963, ND CA, 2011)
Final note: Remember, California labor laws apply to all employees working in California. If you have employees on assignment from other states or nations, always check with your attorney on how to handle wages and benefits.