We are big fans of having a Deductions clause in your Employment Agreement to support you in the process of making fair deductions from an Employee’s pay.

This might be due to:

Any sum owed to your Company from the Employee;
Time not worked through sickness, accident or absence;
Default or incorrect overpayment;
Annual holiday, sick or bereavement leave taken in advance;
Lost, damaged or unreturned property, clothing or materials belonging to your Company
Payment for notice not given; or
Money owed on any staff account.

We include a Deductions clause in all our client’s Employment Agreements, it’s an absolute must to have! However, just because you have a Deductions clause in your Agreement does not mean that you can make deductions as and when you please – even if you have a fair reason!

The Wages Protection Act 1983 states that deductions must only be made if they are:

1. Required by law and

2. Are agreed to by the Employee

If you make a deduction from an Employee’s pay without their written consent, they may take action against you – we don’t want that!

If you have a lawful deduction to make you need to consult first. Below is a high-level summary of what the process might look like:

1. You have identified an overpayment in wages or have a lawful deduction you are proposing to make.

2. You need to write to the Employee outlining the dollar amount of the deduction you are proposing, why you are proposing it and how you propose it be paid i.e., in the next pay cycle, deducted from final pay or paid directly to the Company – remember you are proposing this deduction and you need to get written approval from the Employee and listen to any feedback they may have.

3. We recommend that you meet with the Employee to discuss this deduction further if they have questions or wish to give you any feedback.

4. Make sure that you ask the Employee to provide written consent to the proposed deduction, verbal agreement is not enough in this case.

5. If you run into trouble or the Employee does not agree to the deduction, we encourage you to connect in with us to facilitate another conversation or advise on next steps.

Whatever you do, make sure that you do not make any deductions without written consent – this is crucial, without written consent you may need to consider recovering payment through the Employment Relations Authority.

People Passion are happy to support you with documentation, meetings, or scripts to help you with this process. Please connect in at any time if you would like to discuss this with us.

This article is not intended to replace legal advice.

Deductions 101

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