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employment

Deductions from pay: When is it legal?

Key Takeaway

In New Zealand, employers can only make deductions from an employee's pay if there's a written agreement from the employee or if the deduction is specifically authorised by law. Unauthorised deductions are unlawful. Employees have rights to challenge improper deductions, typically through a personal grievance process starting with mediation.

When Can an Employer Deduct Money from Your Pay in New Zealand?

In New Zealand, strict rules govern when an employer can make deductions from an employee's wages. Wages refers to salary, commission, and any other fixed or ascertainable amount payable to an employee for their work [Source: Wages Protection Act 1983, s 2]. Generally, employers are prohibited from making deductions unless specific conditions are met.

General Rule: Consent or Enactment Required

An employer can only make a deduction from an employee's wages or salary if it is permitted by one of the following:

  • A provision in any enactment (a law passed by Parliament, such as an Act or Regulation) [Source: Wages Protection Act 1983, s 4(1)(b)].
  • A written consent signed by the worker concerned [Source: Wages Protection Act 1983, s 4(1)(a)]. This consent can be a general authorisation for certain types of deductions made from time to time [Source: Wages Protection Act 1983, s 4(2)].
  • A provision in an award, collective agreement, or individual employment agreement [Source: Wages Protection Act 1983, s 4(1)(b)]. An individual employment agreement may specifically contain a written authority for the employer to make deductions for the provision of any benefit or service by the employer to the worker [Source: Wages Protection Act 1983, s 4A].

Deductions Authorised by Enactment

Certain deductions are legally required or permitted by specific laws, even without an employee's direct 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 pay it to the Inland Revenue Department [Source: Income Tax Act 2007, s RD 3].
  • Student loan repayments: Deductions for student loan repayments are mandatory for employees earning above a certain threshold [Source: Student Loan Scheme Act 2011, s 155].
  • Child support payments: Where required by a child support order or agreement, employers must deduct child support from wages [Source: Child Support Act 1991, s 157].
  • ACC earner's levy: The Accident Compensation Corporation (ACC) earner's levy is deducted from an employee's income [Source: Accident Compensation Act 2001, s 212].
  • Court orders: Such as attachment orders to recover fines or debts [Source: District Courts Act 1947, s 84F].

Deductions Requiring Employee Consent

For any other deduction, an employer must have explicit, written consent from the employee. This commonly applies to:

  • Union fees: If an employee chooses to be a union member, they may authorise their employer to deduct union fees directly from their pay.
  • Payments for employer-provided benefits or services: Such as deductions for a company car, staff housing, or merchandise purchased from the employer [Source: Wages Protection Act 1983, s 4A].
  • Overpayments: If an employer has mistakenly overpaid an employee, they may recover the amount of the overpayment [Source: Wages Protection Act 1983, s 5]. While the Act allows recovery, it is best practice for the employer to discuss and agree on a repayment schedule with the employee.
  • Damage, loss, or till shortages: Employers cannot make deductions for these without a clear, specific written agreement from the employee. A general clause in an employment agreement that does not specify the exact type and circumstances of the deduction may not be sufficient.
  • Advance payments: If an employer gives an employee an advance on their wages, they can deduct this amount from future pay, provided there is a written agreement to do so.

Unlawful Deductions

Any deduction made without an employee's written consent or without being authorised by an enactment is unlawful. Examples of potentially unlawful deductions include:

  • Deductions for cash shortages or breakages without specific written consent.
  • Deductions for uniforms or equipment without prior written agreement.
  • Deductions for training costs if not clearly agreed upon in writing and meeting specific legal requirements.

Challenging Unlawful Deductions

If an employee believes an unlawful deduction has been made from their wages, they may raise a personal grievance. A personal grievance is a claim by an employee against their employer for an alleged unjustifiable action that disadvantages them or causes them dismissal [Source: Employment Relations Act 2000, s 103(1)(c)].

  • Time limit: A personal grievance must generally be raised with the employer within 90 days of the action occurring or coming to the employee's attention [Source: Employment Relations Act 2000, s 114].
  • Resolution process: The first step typically involves discussion with the employer. If unresolved, the employee can contact the Ministry of Business, Innovation and Employment (MBIE) for free mediation services [Source: Employment Relations Act 2000, Part 3, Subpart 1]. If mediation is unsuccessful, the matter may be referred to the Employment Relations Authority (ERA) for determination [Source: Employment Relations Act 2000, Part 3, Subpart 2].

When to Seek Independent Legal Advice

If an individual believes their employer has made unlawful deductions from their pay, they may consider seeking independent legal advice. Information and assistance can be obtained from Community Law Centres or the Ministry of Business, Innovation and Employment (MBIE) employment services.

Key Resources