From the Experts: Deductions from Employee Wages Not Allowed Except in Limited Cases

One of our employees is continually short on their cash drawer. Can we deduct the shortage from the employee’s tips if the employee agrees to the deduction?

No. In California, tips belong to the employee to whom they were given and cannot be used to offset business losses, including cash drawer shortages, regardless of whether the employee agrees.

State law strictly limits the types of deductions an employer can make from an employee’s wages, and tips are treated the same as wages under the law.

Narrow Exceptions

Deductions from wages are allowed only in a few narrow circumstances when:

• Required by law (for example, taxes);
• Expressly authorized in writing by the employee for allowable items like insurance premiums or benefit contributions;
• Ordered by a court (for example, garnishments); or
• Permitted by a valid collective bargaining agreement.

Even if an employee agrees to it, employers generally may not deduct for things like cash shortages, breakage or losses due to employee negligence — unless there is clear evidence of dishonesty, willful misconduct or gross negligence.

Even then, deductions are risky, and an employer should be cautious when using them.

The burden of proof falls on the employer to justify the deduction, and an employer who fails to meet that burden can be liable for waiting time penalties.

Better Alternatives

If there’s any doubt about your ability to prove dishonest, willful misconduct or gross negligence, the safer course is to pursue recovery through small claims court or another legal avenue and not through payroll deductions.

If an employee’s cash drawer is short repeatedly, employers should address the issue through retraining, performance management or discipline. Improperly attempting to recover losses from an employee’s wages or tips could violate California law and expose your business to wage and hour penalties and liability.

Vanessa M. Greene, J.D., Employment Law Subject Matter Expert, CalChamber

CalChamber members can read more about Deductions from Wages in the HR Library. Not a member? Learn how to power your business with a CalChamber membership.