We have agreed to operate on a team basis in our organization. We share workload, bonuses, etc. Now we’ve got a problem. We think someone on the team has stolen something from the office, but no one will admit to the theft. May we deduct a certain amount from each employee’s check to cover the theft? If we can’t take it from the pay, can we deduct the amount from the bonus? — Mel, HR Manager in Chino
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
You probably should not deduct the amount of the loss from your employees’ pay. California law generally requires that employers pay earned wages promptly to employees and does not allow employers to deduct from a nonexempt employee’s wages to compensate for cash shortages or other similar losses. Such losses are assumed to be an ordinary cost of doing business, and an employer cannot make the employee its insurer.
There is an exception to that general rule if an employer can prove (a mere assumption is not enough) that a loss was caused by the dishonest or willful act of an employee or an employee’s gross negligence. In your situation, however, you don’t seem to know how the item went missing, so you certainly cannot prove that it is because of an employee’s dishonest or willful act or gross negligence. Even if you could prove that one employee was responsible, the law still would not permit you to deduct from all of the employees’ wages—even if there is an agreement to suffer losses as a team.
Moreover, under federal law, an employer may not deduct an amount that would reduce an employee’s pay to below minimum wage unless an employee actually has been convicted of theft or misappropriation, which is not the case here.
In Ralph’s Grocery Co. v. Superior Court (112 Cal. App. 4th 1090), a California court held that the same prohibitions on deductions from nonexempt employee wages apply to bonuses, which means that you cannot deduct the loss from your team’s bonus if the team consists of nonexempt employees. The court also held, however, that the prohibitions do not apply to exempt management-level employees, whom the court found could have a bonus plan that considers a full range of revenue and expense items, including cash and merchandise shortages. Thus, if the employee team involved is a management team, made up entirely of exempt employees, and if you have a bonus plan that contemplates such deductions from bonus amounts, it may be possible to deduct the loss from the management team’s bonus.
Those are a lot of “ifs,” so I would advise contacting legal counsel before making these kinds of deductions; that way your bonus plan can be reviewed, and you won’t unwittingly create liability for yourself.
Sandra Rappaport is a partner at the San Francisco office of law firm Hanson, Bridgett, Marcus, Vlahos & Rudy.