Nobody wants to receive a paycheque that’s smaller than they were expecting, but sometimes, wage deductions are necessary. So, when can an employer make deductions from an employee’s wages?

In Ontario, the Employment Standards Act, 2000 (ESA) provides guidelines regarding what deductions are permissible, in order to protect employees and their earnings. 

Employers are generally not allowed to withhold wages that an employee has earned, make a deduction from an employee’s wages, or cause an employee to return their wages to the employer. However, this general prohibition is subject to a few key exceptions. 

When can an employer make deductions from an employee’s wages?

Employers can generally make deductions from employees’ wages in three circumstances: 

• Deductions authorized by statute or court order 

The ESA permits certain deductions from employees’ wages, such as income tax, CPP and EI contributions, and court-ordered garnishments. Employers must ensure that deductions fall within the authorized categories stipulated by the ESA or other relevant legislation.

• Deductions for overpayments

When an employee is overpaid because of a true administrative error, i.e. the payroll department accidentally pays them twice for the same pay period etc. then these are amounts that an employee was not entitled to in the first place, and therefore are not considered “wages” under the ESA and are not subject to the same strict rules regarding deductions from wages. 

However, employers should not apply this principle too broadly. For an amount to be considered an overpayment, it must have been truly made in error. For instance, if an employer decides to pay an employee for a leave of absence when they are not required to do so by contract or statute, and then the employer later changes their mind and wants to deduct this amount from an employee’s wages, this would not be permitted as it is not a true overpayment. If an employer voluntarily provides an employee with a greater right or benefit, they cannot later characterize it as an “overpayment” in an attempt to get it back from an employee. 

• Deductions with written authorization 

Employers can make deductions from an employee’s wages when the employee provides a written statement authorizing the deduction. The written authorization must either specify the amount of money to be deducted or, provide a method of calculating the specific amount of money to be deducted. 

An oral authorization or a general statement or “blanket authorization”, for example in an employment contract, that purports to allow an employer to make deductions from an employee’s wages, will not be sufficient to permit a deduction from wages. 

When can an employer not make deductions from an employee’s wages?

Even where an employee provides written authorization, there are certain instances where employers are prohibited from making deductions from an employee’s wages. 

Employers are not allowed to make deductions from an employee’s wages for “faulty work” i.e. an employee’s mistake in processing a cash transaction or an employee accidentally damaging a piece of equipment. 

Employers cannot make a deduction from wages if the employer has a cash shortage or has had property lost or stolen when an employee did not have sole access and total control over the cash or property that was lost or stolen. 

Employers also cannot make deductions that would bring an employee’s wages below the minimum wage rate.

Employers should tread carefully when considering deductions from employee wages. Even when technically allowed, deductions can significantly impact morale and strain employee relations. Deductions, particularly if unexpected or unusual, are very unlikely to be well received by employees. Compliance with the ESA is crucial to avoid employment standards complaints and ensure fairness to employees. Clear communication, detailed record-keeping, and understanding of the rules are essential. Employers should prioritize transparency and fairness to cultivate a positive work environment. 

Contact us today to ensure compliance with the law while fostering a harmonious workplace environment.