Wage Deductions and Tips in California
Can we deduct from their paycheck?
Q: One of our retail associates has been coming up short on their register counts multiple times this month. They've volunteered to have the shortages deducted from their commission payments. Is this acceptable?
A: Absolutely not. Under California law, commission payments are considered earned wages and cannot be used to offset any business expenses or losses—even with the employee's written consent.
California maintains strict regulations around wage deductions, treating commissions with the same legal protections as regular wages and tips. This means that cash register shortages, equipment damage, or similar business costs cannot be recovered through commission deductions under any circumstances.
What Deductions Are Actually Permitted?
California law allows wage deductions only in very specific situations:
Legal requirements such as federal and state taxes, Social Security, and disability insurance
Employee-authorized deductions for legitimate benefits like health insurance premiums or 401(k) contributions (with proper written authorization)
Court-ordered deductions including wage garnishments for child support or debt collection
Collective bargaining agreements that specifically permit certain types of deductions
The Misconduct Exception—Proceed with Extreme Caution
While California does allow deductions in cases involving employee dishonesty, willful misconduct, or gross negligence, the burden of proof is entirely on the employer. You must have clear, documented evidence that goes beyond simple mistakes or accidents. Even then, wage deductions remain legally risky and can result in significant penalties if challenged successfully.
Recommended Approach
Instead of attempting wage deductions for cash shortages, consider these compliant alternatives:
Performance management: Implement additional training and closer supervision
Documentation: Maintain detailed records of shortages and corrective actions taken
Progressive discipline: Follow your standard disciplinary procedures for performance issues
Legal recovery: If necessary, pursue reimbursement through small claims court rather than payroll deductions
Remember, improper wage deductions can expose your organization to waiting time penalties, back wages, and additional legal liability. When in doubt, consult with employment counsel before making any deductions from employee pay.