Making Employees Pay for Damaged Company Property

HR Advisor feature article | March 2010

Many employers have real concerns about avoidable expenses resulting from employee damage to company property. 

Some employers have specific policies requiring employees to reimburse for the damages often in the form of payroll deductions or a deduction from the employee's final paycheck. However, a common question is whether or not such a workplace policy is appropriate.

It depends. On one hand, an employer should not deduct against an employee for a cash shortage, breakage, or equipment loss – which is considered a part of the “cost of doing business.” On the other hand, if an employee caused damage to company property due to gross negligence, dishonest or willful acts (i.e. theft), or intentional misconduct to cause damage, then a deduction (or schedule of deductions) generally may be permissible…as long as the employer can clearly prove the employee was at fault, as well as (according to the federal Fair Labor Standards Act):

1. The employer already obtained the employee’s signed and written authorization to deduct for such cases before a loss / damage actually occurs; and
2. The deduction does bring the employee's hourly pay rate below the minimum wage rate.

If the employer cannot establish a sound position to appropriately deduct the cost for loss / damages to company property, three general alternatives exist:

• Apply Disciplinary Action. If loss or damage stems from poor performance issues, the employer should subject the employee to disciplinary action including but not limited to employment termination, especially in cases of gross negligence or intentional actions to cause damage or harm.
• Go to Small Claims. Employers can take the employee to small claims court or file a civil suit to hopefully be awarded the amount calculated for the loss or damage.
• Absorb the Cost. After determining the overall dollar amounts and labor-intensive efforts, some employers may find the cost for the entire recovery process as a much more costly pursuit and simply chalk the event as an important learning experience.

Thus, before creating any policy or agreement towards making an employee payroll deduction for loss or damage to company property, employers should review the above points and be aware of any federal and / or state laws affecting an employer's ability to make such payroll deductions.

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