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employment

Deducting money from final pay: Legal rules

Key Takeaway

In New Zealand, employers generally cannot deduct money from an employee's final pay without the employee's written agreement or explicit legal authority. Lawful deductions include tax, student loan repayments, and child support, as well as specific agreed-upon deductions for overpayments or employer-provided goods/services.

Deducting Money from Final Pay in New Zealand: Legal Rules

In New Zealand, the rules regarding deductions from an employee's wages, including their final pay, are primarily governed by the Wages Protection Act 1983. These rules aim to protect employees from unauthorised deductions. Wages are defined as any money or other consideration payable to a worker for work, and include salaries, holiday pay, and other remuneration [Source: Wages Protection Act 1983, s 2]. Final pay generally includes any outstanding wages, accrued but untaken annual leave, and outstanding public or alternative holidays.

General Principles for Deductions

An employer generally cannot deduct money from an employee's wages unless the deduction is either agreed to in writing by the employee or authorised by an enactment (a law) [Source: Wages Protection Act 1983, s 4]. Any agreement for a deduction must be in writing and signed by the employee to be valid [Source: Wages Protection Act 1983, s 4].

Lawful Deductions

Deductions Requiring Written Agreement

Even where specific types of deductions are permitted by law, a written agreement from the employee is often required. These include:

  • Overpayment of Wages: An employer may recover an overpayment of wages by deducting it from future wages if the employee agrees in writing. Alternatively, the employer may apply to the Employment Relations Authority or the Employment Court for an order allowing recovery if no agreement is reached [Source: Wages Protection Act 1983, s 4A].
  • Goods or Services Provided by Employer: Deductions for goods or services supplied by the employer to the employee (e.g., uniforms, tools, meals, or accommodation) are lawful only if there is a written agreement signed by the employee that specifies the value of the goods or services to be deducted [Source: Wages Protection Act 1983, s 5(1)(a)].
  • Advances on Wages: An employer can deduct the amount of any cash advance made to an employee from their wages, provided there is a written agreement signed by the employee [Source: Wages Protection Act 1983, s 5(1)(c)].
  • Property Damage or Loss: Deductions for damage to employer property or loss of employer property caused by the employee are only lawful if there is a specific written agreement authorising such a deduction, signed by the employee, and the deduction does not exceed the actual loss or damage [Source: Wages Protection Act 1983, s 5(1)(e)]. Such agreements are scrutinised and must be specific, not general blanket clauses.

Deductions Required by Law

Certain deductions are mandated by legislation and do not require the employee's individual consent. These include:

  • Income Tax (PAYE): Employers are legally required to deduct Pay As You Earn (PAYE) income tax from an employee's wages and remit it to Inland Revenue [Source: Income Tax Act 2007, Schedule 2, Part A, section 1].
  • Student Loan Repayments: Where applicable, employers must deduct student loan repayments from an employee's wages [Source: Student Loan Scheme Act 2011, Part 2, Subpart 1].
  • Child Support: Employers may be required to deduct child support payments from an employee's wages if directed by Inland Revenue [Source: Child Support Act 1991, Part 5, Subpart 2].
  • Court Orders: Deductions may be made if required by a court order, such as attachment orders or fines [Source: Wages Protection Act 1983, s 5(1)(b)].

Unlawful Deductions

Any deduction from wages that is not authorised by a specific enactment or by a valid written agreement signed by the employee is unlawful [Source: Wages Protection Act 1983, s 4]. Examples of commonly unlawful deductions include:

  • Deductions for cash shortages or till discrepancies without a specific, valid written agreement.
  • Deductions for 'poor performance' or disciplinary reasons.
  • Deductions for tools or equipment provided by the employer, unless specifically agreed in writing for their purchase or specific damage.

Final Pay Components

Upon termination of employment, an employee's final pay generally consists of:

  • Any outstanding wages for work performed up to the termination date.
  • Payment for any accrued but untaken annual holidays. This payment must be calculated based on the greater of the employee's ordinary weekly pay or average weekly earnings for the 12 months before the end of employment [Source: Holidays Act 2003, s 21, s 23].
  • Payment for any untaken public holidays that the employee was otherwise entitled to [Source: Holidays Act 2003, s 28].
  • Payment for any untaken alternative holidays [Source: Holidays Act 2003, s 30].

Challenging Unlawful Deductions

If an employee believes an unlawful deduction has been made from their wages, the law provides mechanisms for addressing such a situation. An employee may raise a personal grievance, which is a legal claim regarding an unjustified action by an employer, within 90 days of the action or the date the employee became aware of it [Source: Employment Relations Act 2000, s 103].

When to Seek Independent Legal Advice

When there are concerns about the legality of deductions from wages, the interpretation of employment agreements, or if an employee wishes to challenge an alleged unlawful deduction, seeking independent legal advice is recommended. Information and assistance can be obtained from official government bodies or Community Law Centres for free advice.

Key Resources