From time to time, an employer wants to make a deduction from an employee’s wages.
This can be when an employee has taken annual leave in advance, not returned equipment, run up a bar tab, or not turned up for a shift which occurs after payday. Of course, an employer could ask the employee to pay back any money owed, but it would be so much more convenient for the employer to simply deduct it from the employee’s pay. So when can deductions (lawfully!) be made?
By Alison Maelzer, Special Counsel, Hesketh Henry
There have been a few changes to the Wages Protection Act 1983 (WPA). These changes mean that employers cannot make unreasonable deductions, and if relying on a general consent, must consult with the employee first.
Wages protection Act 1983 (WPA)
Amendments to the WPA came into force on 1 April 2016. There are two key changes. The first is that the amendment confirms that “an employer may, for a lawful purpose, make deductions from wages payable to a worker –
(a) with the written consent of the worker (including consent in a general deductions clause in the worker’s employment agreement); or
(b) on the written request of the worker”.
Consent
So the good news for employers is that the general consent to deductions that most employers have in the employment agreement will be effective. This clears up any confusion caused by a couple of contradictory cases in the past. However, from 1 April, employers “must not make a specific deduction in accordance with a general deductions clause in a worker’s employment agreement without first consulting the worker”. In other words, before making a deduction in reliance on the general clause in the employment agreement, employers need to explain the deduction it is proposing to make, seek the employee’s feedback, consider it, and then make a decision.
Consultation
Note that the amendments require consultation about the specific deduction – as opposed to fresh agreement. So an employee may provide feedback to the effect that they do not want the deduction to be made. So long as the employer genuinely considers the employee’s view, and so long as the general deductions clause is present in the employee’s agreement, and the employee has signed the employment agreement, the employer can still decide to make the deduction.
Unreasonable deductions
The other key change is a provision stating that an employer cannot make an “unreasonable” deduction. Unfortunately, the WPA doesn’t specify what an “unreasonable” deduction is. However, the talk in the period leading up to the amendments was all about employers making deductions for losses to the business caused by third parties. The example used in the media was petrol stations making deductions from employee’s wages when a member of the public put petrol in their car and drove off without paying.
In our view, it is very likely that such a deduction would be “unreasonable” under the amended WPA, and therefore not allowed. Similarly, our expectation is that deductions for ‘dine and dash’ situations, or, most likely, breakages that were not clearly caused by negligence, would also be unreasonable.
Summary – What you need to do
If relying on a general consent to deductions clause in an employment agreement the employer needs to:
- ensure that any proposed deduction is lawful and reasonable; and
- consult with an employee before making any deductions from his or her wages, including final pay and holiday pay.
If you have any questions about deductions, or want to run a particular scenario by us, please do not hesitate to contact us on 0800 737 827
Alison Maelzer provides advice in all aspects of employment law (both contentious and non-contentious), with a particular interest in health and safety, disciplinary and performance issues.
E: alison.maelzer@heskethhenry.co.nz
T: + 64 9 375 7628