When employee is cashing out a customer with a credit card sometimes the credit card chip reader disconnects and then prompts employee to put in passcode to move forward and Redo credit card transaction. How can I eliminate this step or make it so their passcode works and they don’t have to use owner passcode. 

You might try the "Cancel Transactions" settings in Employee Permissions.  Make sure it is checked.  I am thinking that the reader disconnect is canceling the transaction and that is why it is asking for a passcode.  I have never had this happen to me so I am not for sure.