Employers can generally only take money out of employee’s pay (make a deduction) if it is required by law, (such as PAYE tax), they have the employee’s written consent or for overpayments (in specific circumstances).

Employee rights

Employers can only make a deduction from pay if:

  • it is required by law – for example, PAYE (Pay-As-You-Earn) tax, student loan repayments or child support
  • an employee asked for or agreed to it in writing and it is for a legal and reasonable purpose
  • an employee has been overpaid (in some circumstances), or
  • the court directs a deduction to be made.

If an employee has a clause for general deductions in their , the employer must still talk to the employee before making a specific deduction from their pay and the deduction must be reasonable.


The employee can ask in writing to change or stop a deduction at any time. An employer must do what they have asked as soon as possible or within 2 weeks of receiving the request.

If an employee is earning any sort of income, they must pay income tax. They will need:

Employers will deduct tax using the code employees give them when they start working. Make sure employees are using the right code, or they may be taxed the wrong amount.

If a person is a self-employed contractor, they need to pay their own tax.

Paying tax on your salary or wage – Inland Revenue(external link)

Employee or contractor?

KiwiSaver is a work-based retirement savings scheme employees can choose to be a part of.

Unless employees have opted out of KiwiSaver or have a savings suspension, employers will deduct their KiwiSaver contribution from their pay and pay it to Inland Revenue.

Employees can negotiate the terms of their employment with their employer on whether the employer’s compulsory KiwiSaver contributions are part of their total remuneration package. Whatever is agreed, the employer’s compulsory contributions are their responsibility and must be paid in addition to the employee’s gross salary or wages.

An employee’s salary or wages must never be below the minimum wage because their employer paid the compulsory KiwiSaver contribution from their salary or wages. This is also true for other superannuation schemes. Employer’s contribution to employee’s superannuation must be on top of the minimum wage.

KiwiSaver – Inland Revenue(external link)


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

  • to pay their union fee
  • if a bargaining fee arrangement applies.

Unions and bargaining

Employers cannot just pay employees in accommodation or board. Payment for work must be in money.

Employees can agree with their employer that they will provide accommodation and that the cost of the accommodation will be taken out of the employee’s pay. This often happens if employees work in agriculture or farming. The agreement should be in writing and should clearly state what has been agreed and how much it will cost, which should be reasonable.

The amount being deducted for accommodation will be included as part of the wages when calculating if they are being paid the minimum wage.

If an employee does not have an agreement about the cost of accommodation, their employer cannot take more than 15% of the relevant minimum wage rate for board (accommodation and meals) or 5% for lodging (just accommodation).

The tenancy or accommodation agreement should be separate from the employment agreement.

Sometimes, employers might provide other goods or services such as the use of farming property or providing firewood or an animal. However, the employer cannot deduct money from an employee’s pay to cover these things unless they have agreed to it and agreed on how much they should cost.

The amount agreed will be included as part of the employee’s wages when calculating if they’re being paid minimum wage. Their payslip should show the total wage, as well as how much was deducted for the goods or services.

Employers should:

  • put what was agreed to in writing, separate from the employment agreement
  • employees should get advice about how these deductions might affect the tax they pay.

Occasionally, an employer can make deductions to help an employee pay debt to a lending company. This can only happen if:

  • the employee has asked for or agreed to it in writing, or
  • the lending company has a court order for the deduction.

If an employee asks for or agrees to the deductions, the employee can change their mind anytime and ask in writing for them to be changed or stopped. The employer needs to make the change within 2 weeks of the request.

Both the employee and their employer need to think about what will happen if the payments to the lending company stop or do not get passed on – it's a good idea to talk to a lawyer before agreeing to this type of deduction.

Employers cannot force an employee to agree to make debt payments or tell them how or where to spend their pay, and they cannot dismiss an employee because they have spent their pay in a certain way.

If an employee leaves without giving their employer the notice required in their employment agreement, the employer cannot make deductions or withhold their wages or holiday pay unless the employee agrees in writing.

If an employment agreement includes a deductions clause saying that the employer can deduct wages or holiday pay if the employee resigns without giving the required notice, the employer can only enforce it if:

  • the employee was given enough time to consider and ask for independent advice on the terms and conditions of the employment agreement, and
  • the employee signed the employment agreement, and
  • any deductions relating to that clause are based on the actual loss suffered by the employer because the employee did not work their notice period, and how much of the notice period they did not work.

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 employee’s 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.

Employment Relations Authority(external link)

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

Performance management, training and development

An employer can only deduct money from an employee’s pay without their written consent if they overpaid them and they were:

  • absent from work without their agreement
  • on strike
  • locked out (as part of collective bargaining)
  • suspended (if seeking to suspend without pay, seek legal advice).

Disciplinary process

Deductions for overpayments

Employers cannot deduct wages for time lost because of poor performance.

An employer must tell their employee about the overpayment before their next normal pay day, unless:

  • the employee does not have a fixed workplace (fixed workplace means they work in one set workplace) – then they must inform the employee no more than 10 days after their next normal pay day, or
  • the employee has a fixed workplace but does not go there during normal working hours – then they must tell the employee no later than the first day after their next normal pay day that they go to their workplace during normal working hours, or
  • the employee has 2 or more fixed workplaces and did not go to either of them during normal working hours on their next normal pay day – then they must tell the employee no later than the first day they go to one of the workplaces.

Employers must deduct the overpayment from an employee’s pay within 2 months of letting them know about it.

Performance management, training and development

If an employer deducts money illegally

It's illegal for an employer to take money out of an employee’s pay without their freely given written consent or a court order. If an employer takes money from an employee's pay without written consent, and the employee cannot resolve this with the employer, the employee can contact us on 0800 20 90 20 or email us.

Premiums or fees for employment

It is also 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 an employee or someone they know is being charged a premium, they 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.

Contact us

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