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Penalty Pay-Docking: Is It Legal?

We all have rough days at work.


A warehouse worker smashes an entire pallet of product with a forklift.

A cashier’s register counts $48 short at shift end.

A food server breaks a whole stack of plates.

A cook keeps customers waiting during an extra long bathroom break (again).


For a business owner, someone else’s rough day can take a bite out of profits!

Sherman Oaks Accounting & Bookkeeping powered by One Source Services, Inc. has clients ask us about this all the time.

Is it legal to recoup property damage or cash shortages by docking an offending employees’ pay?

The simple answer is NO; it is not legal to deduct an employee’s pay this way.

Here’s the rule of thumb for deducting pay:

An employer is not permitted to deduct an employee’s pay unless it was previously agreed upon in writing.

The above statement is so important that we are going to say it again:

As an employer, it is illegal to deduct an employee’s pay for any reason without the employee’s prior written permission to do so.

In other words, an employer cannot simply dock cash shortages or property damages from an employee’s pay.

Even if you’re convinced the cashier’s register was short $48 because they pocketed a $50.

If you really believe an employee committed a crime that resulted in a cash shortage, then you must prove to a court of law that the employee took the money before you can require them to repay the shortage to you.


  • Repay cash shortages to themselves via payroll deductions, even if an employee is suspected of stealing.
  • Deduct wages to cover the cost of company property an employee may have damaged.
  • Dock pay for the cost of regular wear-and-tear damage to property.
  • Make a payroll deduction for damages caused to his or her property by an employee.
  • Dock pay for damages an employee may have caused to someone else’s property.
  • Deduct the cost of equipment, supplies, insurance, fuel, or other business expenses from an employee’s pay.
  • Take uniform costs from an employee’s paycheck. In fact, if an employer requires that employees wear uniforms, then the employer must pay for it.
  • Pay themselves back for employee loans or advances without the employee’s prior written consent.

However, an employer may legally ask an employee for permission to deduct the cost of intentional property damages or cash shortages from their pay.

An employee does not have to agree to allow it, though. In which case the employer would have to take the offending employee to court over the matter.

Of course, there are many legal payroll deductions; some of them are even required.

In addition to mandatory state and federal taxes, Social Security contributions, and court-ordered wage garnishment or income assignment deductions, employees can elect to make additional deductions for union dues, insurance premiums, bank payments, pension contributions, charitable contributions, vacation, childcare, and health fund contributions, and more.

Note that all of the above deductions are pre-approved by the employee in writing.

Sherman Oaks Accounting & Bookkeeping powered by One Source Services, Inc. is available to answer questions about payroll deductions and will gladly review your procedures if you’re not sure.


One Source Services, Inc. dba Sherman Oaks Accounting & Bookkeeping is not a law or CPA firm and this article is intended as business accounting self-help information only; it is not a substitute for the advice of an attorney. You should consult a licensed attorney in your area if you need legal advice for a specific problem.

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