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October 07, 2010
Employee Pay Deductions Involving Cash Shortages, Destroyed Property and Overpaid Employees

Cheryl Orr and Heather Sager discuss specific situations that can involve employee pay deductions in a BLR webinar entitled ‘Wage Payments: What You Can and Can’t Legally Deduct from Employees’ Pay’. They provide the following information about employee pay deductions that can involve cash shortages, destroyed property and overpaid employees.

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What should be done if any of the following occur:

  • There’s a cash shortage: Is this an honest or dishonest situation? This usually occurs in the retail environment or context. It can also occur commonly in the hospitality context such as in restaurants and bars. Organizations have to reconcile cash registers or cash on hand. The shortage cannot be deducted from an employee’s pay. However, common sense does apply and there is an exception where the employer can show that the shortage or loss was caused by actually employee dishonesty or gross negligence. However, sufficient proof of dishonest is needed. A mistake or negligence is not sufficient proof e.g. an employee accepts a non-valid form of payment from a customer. Such mistakes are referred to as the cost of doing business
  • Property gets destroyed: Was it just a mistake? This is similar to cash shortages. Proof of intentional property destruction can be presented to a court
  • An employee is inadvertently overpaid:
    • Is it a loan?
    • Do I need the employee’s consent to withhold?
    • In most cases and under federal law, an employer can recuperate and retrieve the overpayment without go against any federal laws, even if the deductions bring the employee below minimum wage. Federal law views such overpayment as the equivalent to an employee loan

Cheryl D. Orr, Esq. is a partner and co-chair of the national Labor and Employment Practice Group at Drinker Biddle & Reath LLP ( She concentrates her practice on defending employers against FLSA collective actions and state and federal wage and hour class actions, and she regularly litigates discrimination, harassment, and unfair competition claims.

Heather M. Sager, Esq. is also a partner in the Labor and Employment Practice Group at Drinker Biddle & Reath LLP. Sager focuses her practice on management-side representation in collective and class actions, with particular experience in wage and hour litigation under state and federal law, including representative claims brought under California Business & Professions Code Section 17200.

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