Under the 1978 North Carolina wage-payment law, could an employer deduct a cash register or merchandise shortage from wages, or base a bonus on the absence of shortages?

Plain-English summary

In this 1978 opinion, North Carolina's Attorney General answered two questions from state labor officials. A deduction from wages for a cash or merchandise shortage violated the Uniform Wage Payment Law. A wage formula that included shortages did not comply either.

The AG read G.S. 95-166(2) as allowing a deduction under the quoted exception only with written employee authorization for a lawful purpose "accruing to the benefit of the employee." Covering a cash-register or merchandise shortage did not benefit the employee. The opinion also quotes a Commissioner of Labor regulation forbidding withholding for cash-register and inventory shortages, property losses, and delinquent checks endorsed by an employee. G.S. 95-163 separately forbade withholding wages and tips as security for assigned tasks.

An agreement with the worker did not change the result: G.S. 95-168 said no provision of the wage-payment article could be set aside by private agreement. Nor could an employer use a wage formula to reach the same result. The AG gave a "bonus" for having no shortage as an example and concluded that a shortage-based formula violating equal pay for comparable work would violate the law.

The opinion distinguished an earlier minimum-wage opinion. That earlier opinion had addressed a shortage deduction that reduced pay below the minimum wage. This opinion concluded that the Uniform Wage Payment Law prohibited the described shortage deductions regardless of that earlier minimum-wage threshold.

Currency note

This opinion was issued in 1978 and analyzes statutes and a regulation then in force. Check current North Carolina wage law before applying its rule to a current paycheck.

What this means for you

Employees. The opinion's answer covers both direct deductions and a shortage-based pay formula for comparable work. A signed agreement does not override the 1978 law as the AG read it.

Employers and payroll staff. The opinion says to examine how pay is calculated, not just whether a line item is labeled a deduction. Its example is a no-shortage bonus that effectively penalizes an employee for a cash or inventory shortage.

Labor officials. The opinion provides separate grounds in G.S. 95-166, G.S. 95-163, G.S. 95-168, the quoted regulation, and the definition of wages in G.S. 95-161(f). It does not discuss remedies or enforcement procedure.

Common questions

Would written permission from an employee allow the employer to deduct a cash shortage?

No, under the 1978 opinion. G.S. 95-166(2)'s quoted exception also required the deduction to benefit the employee, and the AG said a shortage deduction did not. G.S. 95-168 separately prevented a private agreement from setting aside the wage-payment article.

Did the opinion cover inventory losses and bad checks?

Yes. The Commissioner of Labor regulation quoted in the opinion forbade withholding for "cash register or inventory shortages or other losses or damages to property or delinquent checks which an employee has endorsed."

What if the employer calls the adjustment a no-shortage bonus?

The AG said that paying a "bonus" for avoiding a shortage has the same effect as deducting the shortage. Its conclusion covers any wage calculation that produces different pay for comparable work because the formula includes cash or inventory shortages.

Did pay have to fall below the minimum wage for the AG's answer to apply?

No. The opinion cites an earlier minimum-wage ruling about deductions that pushed compensation below the statutory rate. It then gives a separate answer under the Uniform Wage Payment Law to the questions presented here.

Background and statutory framework

The Uniform Wage Payment Law took effect January 1, 1976, according to the opinion. It required timely, regular wage payment and permitted withholding only as expressly allowed. The AG applied G.S. 95-166(2)'s written-authorization and employee-benefit language, the Commissioner's rule at 13 NCAC 9C.0304(b), G.S. 95-163's prohibition on wages held as security, and G.S. 95-168's bar on contracting around the article. G.S. 95-161(f) defined wages across methods of computation, which supported the opinion's answer on shortage-based formulas.

Citations

• G.S. 95-87
• G.S. 95-161, et seq.
• G.S. 95-161(f)
• G.S. 95-163
• G.S. 95-166
• G.S. 95-166(2)
• G.S. 95-168
• 13 NCAC 9C.0304(b)
• 43 N.C.A.G. 332 (1974)

Source

• Landing page: https://ncdoj.gov/opinions/labor-the-uniform-wage-payment-law-effect-upon-deductions-from-pay/

Original opinion text

Requested By:

The Honorable J. Taylor McMillan
Deputy Commissioner of Labor

Mr. W. James Easterly, Director
State Employment Standards Division

N.C. Department of Labor

Questions:

• (1) Is a deduction from wages for a cash or merchandise shortage a violation of the Uniform Wage Payment Law?
• (2) Does a formula for wage payment including deductions of shortages, in any form, comply with the Uniform Wage Payment Law?

Conclusions:

• (1) Yes.
• (2) No.

This Office has previously held that any deduction from an employee's wages for cash and merchandise shortages which has the effect of reducing his rate of compensation below that prescribed by G.S. 95-87 is a violation of the Minimum Wage Law. 43 N.C.A.G. 332 (1974). You now ask if an employer's practice of deducting cash and merchandise shortages from the wages of an employee is a violation of the Uniform Wage Payment Law, G.S. 95-161, et seq.

The Uniform Wage Payment Law became effective on January 1, 1976. It requires an employer to pay his employees on a timely and regular basis and prohibits any withholding of wages, except as expressly permitted.

G.S. 95-166 deals with the withholding of wages. It provides, in pertinent part:

"No employer may withhold or divert any portion of an employee's wages unless:

(2) the employer has a written authorization from the employee for deductions of a lawful purpose accruing to the benefit of the employee as provided in regulations issued by the Commissioner." (Emphasis added)

The language of this section is clear and unambiguous. An employer may not withhold any wages of his employee unless he has written authorization and unless it accrues to the benefit of the employee. The withholding of wages by an employer to account for cash register or merchandise shortages clearly does not accrue to the benefit of the employee. This is expressly recognized in the regulations of the Commissioner adopted pursuant to the directions of G.S. 95-166(2):

"No employer may withhold cash register or inventory shortages or other losses or damages to property or delinquent checks which an employee has endorsed." 13 NCAC 9C.0304(b)

That it was the intention of the General Assembly in enacting the Uniform Wage Payment Law to prohibit employers from withholding the wages of an employee to account for cash register or merchandise shortages is confirmed by reference to G.S. 95-163. This section requires than an employer pay his employees "on or before the current pay day all the wages and tips accruing to said employee." It is then stated:

"The employer shall not withhold any wages and tips as security for the performance of assigned tasks."

We note that the prohibition against an employer withholding wages of his employees to account for cash register or merchandise shortages may not be circumvented by means of a private agreement between the employer and the employee. G.S. 95-168 specifically provides that "no provision of this Article may in any way be contravened or set aside by private agreement."

A second problem has been presented in the form of employer wage payment schemes attempting to penalize employees for cash or inventory shortages while giving the appearance of compliance with the law.

For example, payment of a "bonus" for not having cash or inventory shortages has the same effect as deducting the shortage from the employee's wages.

G.S. 95-161(f) states:

"(f) the term "wages' means compensation for labor or services rendered by an employee, whether the amount is determined on a time, task, piece, commission, or other basis of calculation." (Emphasis supplied)

This statute makes it clear that the General Assembly intended that the Uniform Wage Payment Law apply to all wages, without regard to the method of computation.

In our opinion, any method of computing wages which results in a disparity between wages paid for comparable work due to a formula including cash or inventory shortages would constitute a violation of the Uniform Wage Payment Law of North Carolina.

Rufus L. Edmisten
Attorney General

George W. Lennon
Associate Attorney General