PunchCan You Deduct for Tools, Uniforms, Damage, and Cash Shortages? Payroll Deduction Rules (2026)
Can You Deduct for Tools, Uniforms, Damage, and Cash Shortages? Payroll Deduction Rules (2026)
The short answer: Federal law does not ban these deductions outright. It caps them. A deduction for anything that primarily benefits your business cannot push a worker below minimum wage for that workweek, and in an overtime week it cannot touch the overtime premium at all. Several states go further and prohibit the deduction entirely, no matter how the math comes out. The test runs workweek by workweek, on exact hours worked, which means it is only as good as your time records. Punch is the punch record that makes that math checkable.
A crew member drops a laser level off a roof. A server's till is forty dollars light. A tech quits and keeps the branded jacket. The instinct in all three cases is the same, and it is where small employers get themselves into wage claims.
The Federal Rule Is a Floor, Not a Permission Slip
The controlling regulation is 29 CFR 531.35, the "free and clear" rule. Wages are not considered paid unless they are paid finally and unconditionally. If value flows back from the employee to the employer, directly or indirectly, the wage was never really paid.
The Department of Labor applies that idea in Fact Sheet #16. The framing there is worth quoting closely, because it is broader than most owners assume. Uniforms and other items considered primarily for the benefit or convenience of the employer cannot be counted as wages. Deductions for cash or merchandise shortages, employer-required uniforms, and tools of the trade are not legal if they reduce wages below the minimum wage or reduce the overtime pay due.
Three consequences follow, and each one catches somebody.
The category is wide. "Tools of the trade" is not limited to a hammer. If the item exists because your business requires it, it is presumed to be for your benefit. Required uniforms, and the cost of laundering them, sit in the same bucket. The FLSA does not require anyone to wear a uniform. But once you require it, the cost is a business expense.
Cash instead of a deduction changes nothing. Fact Sheet #16 is explicit that an employer may not sidestep the minimum wage and overtime requirements by having the employee reimburse the cost in cash rather than deducting it from the check. Asking a crew member to Venmo you for the broken level is the same violation with extra steps.
The unit of measurement is the workweek. Not the pay period, not the month. A deduction that is lawful in a fifty-hour week can be unlawful in a twenty-eight-hour week for the same employee. If you do not know the exact hours in each fixed workweek, you cannot run the test.
The federal minimum wage is still $7.25 an hour, unchanged since 2009. Most of your crew is nowhere near it, which is why owners assume they have room. Then a short week arrives.
Overtime Weeks Are Stricter Than the Minimum Wage Test
This is the part that surprises people. In a week with overtime, there are two protected amounts, not one.
Work the arithmetic on a real crew member. Say she earns $16 an hour and works 45 hours in your fixed workweek. Straight time is $720. The overtime premium on the five extra hours is another $40. Total due is $760.
Now the protected floor. Minimum wage for every hour worked is 45 times $7.25, or $326.25. The overtime premium of $40 may not be reduced at all. Together, $366.25 is untouchable. The most you could lawfully deduct that week under federal law is $393.75.
That looks like plenty of room. Run the same worker through a rained-out 22-hour week at $16 an hour and the picture changes fast. Gross is $352, the floor is $159.50, and the ceiling on deductions drops to $192.50. Run a genuinely near-minimum-wage worker at $8 an hour for a straight 40 hours and gross pay is $320 against a $290 floor. The most you can take that week is $30. A $45 uniform charge is a violation. Split across two weeks at $22.50 each, it clears federally.
Nothing about that calculation is possible without exact hours worked, in the correct workweek, per person.
The Four Deductions Owners Get Wrong
Broken or lost equipment. Ordinary breakage is a cost of doing business. Charging it back is where most claims start, because the deduction usually happens in the same check as the incident, in whatever week it happened to land.
Required uniforms and their upkeep. Branded shirts, safety gear you mandate, and the laundering of both. Generic clothing that a worker could wear anywhere, like plain dark pants, is treated differently from a shirt with your logo on it.
Cash and merchandise shortages. Register shortfalls, unpaid customer tickets, inventory that walks. Federal law caps these the same way. Several states ban them outright.
The final paycheck. The temptation to zero out a departing worker's last check against an unreturned tool is strong and it is the single fastest route to a state wage claim. Final pay is already governed by state deadline rules, and a disputed deduction on top of a late check compounds the exposure. Our guide to final paycheck laws by state covers the timing side.
The States That Say No Regardless of the Math
Clearing the federal floor is not the end of the analysis. It is the beginning.
California. Labor Code sections 221 and 224 make it unlawful to collect back wages already paid. The California Division of Labor Standards Enforcement treats cash shortages, breakage, and loss of equipment caused by simple negligence or accident as a cost of doing business, not something chargeable to the worker. The Industrial Welfare Commission wage orders contain a narrow exception for losses caused by a dishonest or willful act, or by the employee's gross negligence. The DLSE's own payroll deduction guidance cautions that even that exception may not survive contact with the Labor Code and California case law, and that an accusation is not evidence. The employer carries the burden. In practice, California employers who deduct for damage are betting a wage claim on their ability to prove intent.
New York. Labor Law section 193 works as a closed list rather than an open one. Deductions are permitted when required by law or regulation, or when expressly authorized in writing by the employee, voluntary, and for the employee's benefit, following written notice of all terms. The enumerated categories run to insurance premiums, pension and health contributions, charitable giving, union dues, and similar payments made for the worker. Recovering the cost of a broken tool is not a payment for the benefit of the employee. Amendments added narrow room to recoup salary advances and clerical overpayments under state regulations, which tells you how tightly the rest is drawn.
Texas. More permissive, and still not a blank check. Under section 61.018 of the Texas Labor Code, deductions require a legal mandate, a court order, or the employee's written authorization. Texas Workforce Commission rule 821.28(b) requires that authorization to be specific as to amount and purpose and to make clear the money comes out of wages. A blanket sentence in a handbook saying an employee is responsible for damage is not a specific authorization. And the federal minimum wage floor still applies on top.
If you run crews in more than one state, write to the strictest state you operate in and apply it everywhere. Two policies is how one payroll decision becomes a class-wide problem. The same logic applies to crews that cross state lines for overtime purposes.
Every Version of This Test Runs on Hours
Read back through the analysis and notice what each rule needs from you.
The minimum wage test needs exact hours worked in one fixed workweek. The overtime premium test needs to know which hours crossed 40, which means you need a workweek that is actually fixed and consistently applied. The proration strategy needs to know what the next week's hours are before you take the second half. A state claim needs a record you can produce months later showing what the worker actually earned per hour after the deduction.
That is a timekeeping problem wearing a payroll costume. Handwritten hours, memory, and a text message at the end of the week cannot support any of it.
Punch is built to be that record. Punch in, punch out, and lunch are recorded separately with real timestamps, so unpaid meal time never inflates a paid total and hours are exact rather than rounded to something convenient. Your workweek is fixed in settings and overtime is applied against it automatically, with presets for more than 60 countries including the states that run daily overtime and double time. Weekly and bi-weekly pay periods are both supported, and split shifts stay split.
Owners and managers approve the week in one place, with bulk approve and reject, so the hours that reach payroll are hours a human signed off on. Every edit is attributed, so a corrected punch is a documented correction rather than a mystery. Reports show hours and labor cost by person, by job site, and by period, and export to Excel or a QuickBooks CSV, or push straight into QuickBooks Online. Square is supported as well.
Punch does not run your payroll and does not calculate deductions. It gives you the one number every deduction rule turns on, at the precision the rule requires, in a form you can hand to an auditor.
Where Punch Wins on the Rest of It
Crews punch in from iOS with a job-site geofence, from any browser, or from a shared iPad kiosk with a PIN. Punches work offline and sync when signal returns, which matters in a basement, a stairwell, or a rural site. Time off requests live in the same app instead of a group text.
On privacy, Punch verifies a punch with a job-site geofence, never a camera in your crew's face. There is no facial recognition and no photo at a punch. Trust beats surveillance, and it holds up better in a hearing than a folder of employee photographs.
Pricing is flat per organization. Every feature is on every plan, kiosk mode and QuickBooks included, owners are always free, and nothing is billed per seat. ClockShark, Connecteam, QuickBooks Time, Buddy Punch, and Homebase all bill you per user, so the compliance record that protects you gets more expensive every time you hire. Punch does not work that way. Adding a seasonal crew for six weeks does not move your bill.
The Bottom Line
You are allowed to deduct less than you think and you are allowed to deduct in fewer states than you think. Federal law caps any deduction that benefits your business at the minimum wage floor for that workweek and forbids it from touching the overtime premium. Paying you back in cash instead does not cure it. California treats ordinary breakage and shortages as your cost. New York permits deductions only from a narrow list made for the worker's benefit. Texas wants a specific written authorization and still respects the federal floor.
Before you take a dollar out of anyone's check, you need to know exactly how many hours that person worked in that workweek. Get the hours right first. The rest of the decision gets simpler, and the record that proves it already exists.
Start with Punch and keep the hours that every one of these rules depends on.
This article is general information, not legal advice. Wage deduction law varies significantly by state, turns on the specific facts of the deduction, and changes over time. Confirm your obligations with your state labor office or a qualified professional before making a deduction.