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);
- when expressly authorized in writing by the employee for allowable items like insurance premiums or benefit contributions;
- when ordered by a court (for example, garnishments); or
- when 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.
Column based on questions asked by callers on the Labor Law Helpline, a service to California Chamber of Commerce preferred members and above. For expert explanations of labor laws and Cal/OSHA regulations, not legal counsel for specific situations, call (800) 348-2262 or submit your question at www.hrcalifornia.com.
