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Is it legal to dock pay for employee foul-ups?

by on
in Employee Benefits Program,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

Q. Can I deduct the cost of an employee’s error from his or her paycheck?

A. The answer to this question can be found in the California Labor Code and the wage orders that apply to most nonexempt employees. The Labor Code generally precludes employers from withholding from an employee’s paycheck. However, certain sections of the Labor Code and the wage orders provide exceptions to this general rule.

First, Labor Code Section 224 allows employers to withhold for employment taxes, insurance premiums, employee benefit-plan contributions and certain other deductions expressly authorized in writing by the employee.

Second, the wage orders prohibit employers from making deductions from wages or requiring reimbursement from an employee for a cash shortage, breakage or loss of equipment—unless “it can be shown that the shortage, breakage, or loss is caused by a dishonest or willful act, or by the gross negligence of the employee.”

But be careful when invoking this exception. Make sure you can cite clear evidence to support a claim of dishonesty, willfulness or gross negligence. An employee’s mistake that constitutes mere negligence isn’t enough to warrant withholding pay or requiring reimbursement.

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