Employer Deductions of Losses

If you are an employer who has employees working at the cash register or in any other position where they exchange merchandise or services for money, due to a common human error, these employees will make mistakes and will end up with cash shortages once in a while by not balancing the cash register properly or other mistakes.

An employer should be careful to not pass these losses to the employee and not make the employee pay for those shortage or deduct the amounts missing from the employee’s pay. Under California law, absent a showing of intentional dishonesty or gross negligence, an employer may not deduct for ordinary losses caused by an employee, such as cash shortages, breakage or loss of equipment, etc. Kerr’s Catering Service v. Department of Industrial Relations (1962) 57 C2d 319, 329-30. The rationale behind this rule is in that losses due to an employee’s simple negligence are inevitable in almost any business operation and must be borne as expenses of managing that business. The employer is in a better position to absorb those costs than the employee by having the opportunity to pass the costs to the consumer or otherwise.