My Employee’s Big Mistake Has Cost My Business, Can I Deduct It From Her Check?

Question: “One of my employees made an error and as a result a fairly large credit card charge was not submitted. I would like to deduct the money from the employee’s paycheck. May I legally do so?”

Answer: No.  An employer cannot legally make such a deduction from wages if. The California courts have held that losses occurring without any fault on the part of the employee or that are merely the result of simple negligence are inevitable in almost any business operation and thus, the employer must bear such losses as a cost of doing business. For example, if an employee accidentally drops a tray of dishes, takes a bad check or as in this question fails to charge the customer’s credit card, the employer cannot deduct the loss from the employee’s paycheck.

There is an exception contained in the Industrial Welfare Commission Wage Orders that provides the employer the right to deduct from an employee’s wages for any cash shortage, breakage or loss of equipment if the employer can show that the shortage, breakage or loss is caused by a dishonest or willful act, or by the employee’s gross negligence. What this means is that a deduction may be legal if the employer proves that the loss resulted from the employee’s dishonesty, willfulness, or grossly negligent act. Under this regulation, a simple accusation does not give the employer the right to make the deduction.

An employer can lawfully withhold amounts from an employee’s wages only when required or empowered to do so by state or federal law. Or when the deduction is expressly authorized in writing by the employee to cover insurance premiums, benefit plan contributions, health, welfare or pension contributions, when expressly authorized by a wage or collective bargaining agreement. (Labor Code §§ 221 and 224)


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