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Deductions

Deductions may only be made from an employee’s pay if they are required by law, agreed to by the employee or are overpayments in some circumstances.

The Wages Protection Act 1983 sets out the way wages must be paid, and prevents unlawful deductions from wages. Employers can make a deduction from pay if:

  • the deduction is specifically required by law, for example, PAYE tax, student loan repayment, child support
  • the deduction is for a lawful purpose, is reasonable and the employee has agreed to or asked for the deduction in writing. ‘Agreed in writing’ includes a general deductions clause in the employment agreement, but an employer must consult with the employee before they make a specific deduction under a general deductions clause. The employee can vary or withdraw their written consent to a deduction by giving notice in writing at any time. The employer must then vary or stop the deductions within two weeks of receiving the notice or as soon as practicable
  • the deduction is to recover an overpayment in limited circumstances
  • a court directs that a deduction be made.

If an employer takes money from an employee's pay without written consent (freely given, ie the employer can’t threaten or pressure the employee to agree), the employee could contact us or take an action in the Employment Relations Authority to get the money back (as long as it’s not more than 6 years since it happened).

It is illegal for employers to charge an employee a premium (fee) for employment. This includes charging an employee money in exchange for giving them a job or keeping them in a job so they can work under a work visa. It is always illegal, whether the employee pays the fee in a lump sum or regular amount to the employer or the employer deducts the money from the employee’s pay or the employer makes the employee pay their own PAYE tax etc. If you or someone you know is being charged a premium you should contact us for help. A Labour Inspector can seek a penalty against the employer in addition to the employer having to pay the money back to the employee.

If an employer overpays an employee (in some circumstances only), the employer can get back the amount of overpayment from the employee’s pay as long as it wasn’t reasonably practical for the employer to avoid the overpayment (due to the methods and equipment used to make payments).

The employer must let the employee know that they’re going to recover the overpayment before deducting any money, and must make the deduction within two months of telling them.

The employer can recover an overpayment for any period that an employer doesn’t have to pay wages because the employee has:

  • been absent from work without that employer's authority
  • been on strike
  • been locked out (within the meaning of that subsection)
  • been suspended.

Time lost because of poor performance is not an overpayment and an employer can’t deduct wages for this.

In relation to a specific pay deduction, the employer must let the employee know the amount of the overpayment and that they’re going to recover the overpayment no later than five working days after the overpayment was made.

For other overpayments, the employer must let the employee know:

  • no later than 10 days after the employee’s next normal pay day if they don’t have a fixed workplace (fixed workplace means they work in one set workplace), or
  • if they have a fixed workplace, but don’t go there during normal working hours, then no later than the first day after the employee’s next normal pay day that they go to their workplace during normal working hours, or
  • if the worker has two or more fixed workplaces and didn’t go to either of them during normal working hours on the employee’s next normal pay day, then no later than the first day the worker goes to one of the workplaces, or
  • no later than the employee’s next normal pay day in any other case,

and the overpayment must be recovered within two months after the employer lets the employee know.

If an employee leaves their job and doesn’t give their employee the notice required in their employment agreement, an employer can’t make deductions or withhold their wages or holiday pay unless the employee has given their written consent. A written employment agreement may include a specific deductions clause giving the employer specific permission to deduct wages or holiday pay if an employee resigns without giving the required notice. This clause may be enforceable if:

  • the employee has been given adequate opportunity to consider and ask for independent advice on the terms and conditions of the employment agreement, and
  • the employee has signed the employment agreement, and
  • any deductions from wages or holiday pay relying on that clause takes into account the actual loss suffered by the employer as a result of the employee failing to work their notice period; and the proportion of the notice period that the employee fails to work.

Employers can make deductions from an employee’s pay on behalf of the employee’s union:

  • for an employee on a collective agreement, their agreement is treated as if it stated that an employer who is a party to the collective agreement must deduct a member’s union fee from their salary or wages regularly (unless the collective states otherwise)
  • for an employee on an individual employment agreement who is a member of a union, their agreement is treated as if it stated that with the consent of the employee, an employer must deduct a union member’s union fee from their salary or wages)
  • if a bargaining fee arrangement applies to the employee.
  • Board is both accommodation and meals; lodging is accommodation only.
  • Employers and employees can agree that the employer will provide accommodation to an employee, and also that the cost of that accommodation will be deducted from the employee’s pay. Any agreement relating to accommodation should clearly detail the arrangement and its cost to the employee, which should be reasonable. The wage records should include the wages payable before the agreed value of accommodation is deducted (and this total amount is what is used to ensure that at least the minimum wage is being paid to the employee).
  • If there is no specific agreement about the cost of accommodation, an employer may deduct from an employee’s wages, calculated at the relevant minimum wage rate, no more than 15% for board or 5% for lodging.
  • The tenancy or accommodation agreement should be either separate from the employment agreement or able to be separated.

KiwiSaver is a voluntary work-based savings initiative to help all New Zealanders aged under 65 years with their long-term saving for retirement. More information about KiwiSaver, including what employers and individuals need to do to start a savings scheme, is available from the following websites:

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