I'd with-hold the money and seek a discussion with the owner and the employee. Then following the meeting, if she has returned the funds, i'd terminate the employee in accordance with her employment agreement conditions. You may want to consult a Business Law attorney in the Bay Area to sort out your legal options as to terminating the employee. Good Luck!
While your employee may be liable to you for the stolen money, you cannot short her paycheck (except for mandatory deductions like taxes) without being liable for a day's pay for each day the pay is late, up to a maximum of thirty days. Pay her in full (less mandatory deductions), then sue her and report her to the police. I'm in Oakland if you need further advice.
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The two matters (salary and theft) are independent and may not be offset.
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Under the facts as you have stated them, I believe that Mr. Jacobson and Mr. Doland have given you excellent advice which has the potential of saving the company quite a bit of money in statutory obligations (up to thirty days of pay) and attorney’s fees. Good luck.
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You really need to speak with an employment lawyer with expertise in wage and hour issues. The labor codes are going to be very specific in regard to when you can withhold an offset. It is possible you may not be able to withhold funds. You should also immediately call the police and file a report.
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I disagree slightly with my colleagues. I usually don't recommend unauthorized wages deductions, but tou actually CAN deduct for theft. Since theft will not be assumed, you must prove it. If you cannot prove it, then you have some legal hot water on your hands.
Here is the link to DLSE. http://www.dir.ca.gov/dlse/faq_deductions.html
Hint: always post employment/workplace questions on the employment law tag.
David A. Mallen
David A. Mallen offers answers on Avvo for general information only. This offer of free, general answers is not intended to create an attorney-client relationship. If you need specific advice regarding your legal question, you should consult an attorney confidentially. Many experienced California labor and employment attorneys, including David A. Mallen offer no-risk legal consultations to employers and employees at no charge. David A. Mallen is licensed to practice law before all state and federal courts in California, as well as the California Labor Commissioner and the California Unemployment Insurance Appeals Board. Failure to take legal action within the time periods prescribed by law could result in the loss of important legal rights and remedies.