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The Conundrum of Deductions

The Conundrum of Deductions

Can I withhold payment or deduct money from payment due to my employee – certainly one of our top 10 FAQs but most of the time the answer is no.

An employee’s wages are protected by the Wage Protection Act 1983 which stipulates that the entire amount due to employee, without any deductions, must be paid to the employee when it becomes payable, unless;
1. If the employee agreed to the deductions; and/or
2. The employer is recovering an overpayment.

Deductions can be made, if an employee agreed to the deductions. This “agreement” includes the general consent in majority of agreements, BUT, this can be withdrawn by the employee at any time and the employer is obligated to cease such deductions within two weeks of receiving notice from the employee.

The Act is also very clear that when relying on deductions made under the auspice of the general deduction consent, such deductions should first be discussed with the employee and cannot just be instituted unilaterally.

The recommended process would be to discuss all deductions with the employee and request him/her to sign an acknowledgement of debt, which is specific and enforceable. We have a pro forma acknowledgement of debt available on the Toolbox.

Recovering overpayment
The employer must let the employee know, in writing, the amount of the overpayment, the reason for overpayment and that they are going to recover that overpayment, no later than five working days after the overpayment was made. This overpayment must be recovered within two months after the employer informed the employee.

Recovery of notice period
If an employee leaves their job and does not give their employer the notice required in their employment agreement, an employer cannot 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.

If there is no agreement?

Unfortunately, no deduction can be made and any deductions already made, can be claimed back by the employee.

Therefore, always ensure that an employee signs an acknowledgement of debt for all deductions made from his/her wages, excluding of course tax and KiwiSaver.

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