Deductions

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 one time only due to miscalculations or errors such as payroll staff entering the wrong amount or computer system failures causing incorrect pay, the employer must first attempt to agree with the employee on how and when the money is to be paid back.

The employer needs to get the employees’ written consent for the deductions to be made from wages. If the employer cannot get the employee’s written consent, or the employee has left the employment, the employer may consider recovering this overpayment through the Employment Relations Authority.

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

In strictly limited circumstances, the employer can recover an overpayment for any period that an employer doesn’t have to pay wages because during that period 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.

These are the only circumstances in which an employer can recover overpayment of wages as of right, without requiring the employee’s written consent, and only if 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 give the employee notice of the overpayment that they will be recovering:

• 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.

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 employer 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.

Sometimes an employee has agreed to a lending company making deductions from their pay. This is relatively rare, and both employees and employers should think carefully before entering into such an arrangement, as there could be ramifications for both employer and employee if the situation changes. In particular, the parties need to consider who will be liable if payments stop, or are not passed on, and how to record payments taken from wages and paid to a third party.

Employers may only make deductions from an employee’s wages upon the written request of an employee or otherwise with their written consent. Employees can withdraw or vary this consent at any time. If an employer agrees to make deductions from an employee’s wages and to pass these monies on to a lending company, the employer must: get the employee’s written consent to the deductions; be aware that the employee can change their mind at any time and withdraw or vary that consent, and the employer must action this within two weeks or as soon as is practicable. The employer will also need to consider the legal ramifications of agreeing to make deductions for another party, and how to account for these monies.

The Wages Protection Act allows a very limited number of deductions from wages without the employee’s written consent. An employer may make deductions from wages to meet tax obligations (including the payment of PAYE, student loan obligations, and child support), and as ordered by the Courts (for example, for the payment of fines or other judgement debts). Lending companies do not fall into these categories. If a lending company wishes to compel an employer to make deductions from wages without the employee’s consent, then they will need to seek a Court order. Without such an order, the employer must only make deductions with the employee’s written consent as outlined above.

The Act also specifies that employers may not impose any requirement on an employee as to how or where they spend their wages or salary, nor dismiss them because they have spent their wages in a certain place or manner. An employer therefore has no mandate to enforce an employee’s private debt.

Note: Any employee who believes that their employer is making deductions illegally may make a complaint to the Labour Inspectorate (via the Employment New Zealand phone line or website), where their early resolution team may assist.

KiwiSaver is a voluntary work-based savings initiative to help all New Zealanders aged under 65 years with their long-term savings for retirement.

Employers and employees may negotiate terms of employment, including whether an employer’s KiwiSaver contributions (compulsory contributions) are part of the employee’s total remuneration package. However, the employer’s compulsory contributions are the employer’s responsibility and must be paid in addition to an employee’s gross salary or wages.

An employee’s salary or wages must never be below the minimum wage because an employer has paid their compulsory contribution from the employee’s salary or wages. If this occurs it is unlawful, and the employer may be liable to penalties.

More information about KiwiSaver, including what employers and individuals need to do to start a savings scheme, is available from Inland Revenue.

Kiwisaver – Inland Revenue(external link)