Making deductions from a employee wages

Contents

• Wages Protection Act 1983
• What will suffice for a deduction to be ‘agreed in writing’
• When an employee leaves without giving their contractually agreed notice period
• What are overpayments in limited circumstances
• Payroll overpayments
• Process to follow for wage deductions

There are situations where an employer feels justified in making a deduction from an employee’s pay.

For example: the employee may have resigned from their job without giving their required notice – and owes the company money (perhaps they undertook company sponsored education or training and agreed to stay for a period of time after completion or reimburse the company for the costs involved if they left); they may have damaged company property or equipment; or received a speeding ticket in a company vehicle.

It doesn’t matter how justified the employer feels in making the deduction, if an employer deducts money from an employee’s pay without their written consent (freely given, i.e., the employer can’t threaten or pressure the employee to agree), the employee could take legal action to get the money back (for a period of up to 6 years after the deduction occurred). 

Employment law stipulates that deductions may only be made from an employee’s wages if they are required by law, agreed to by the employee.

In certain limited circumstances, overpayments are able to be deducted, but this requires advice from an HR or employment legal advisor.

This article covers when you can and can’t make deductions from wages or pay, and the process you should follow.

Wages Protection Act 1983

The Wages Protection Act 1983 sets out the way wages must be paid and prevents unlawful deductions from wages.

Employers can lawfully make a deduction from pay if:

• The deduction is specifically required by law, for example, PAYE tax, student loan repayment, child support. For this type of deduction, the employer is paying something on the employee’s behalf, so the employee doesn’t have to agree and can’t ask you to stop;
• the deduction is for a lawful purpose, is reasonable and the employee has agreed to or asked for the deduction in writing;
• the deduction is to recover an overpayment in limited circumstances; and
• a court directs that a deduction be made.

What will suffice for a deduction to be ‘agreed in writing’

Often employers believe that if they have a general deductions clause in the employment agreement, this will cover the ‘agreed in writing’ requirement for them to make a deduction from an employee’s pay. However, this is not correct, an employer must consult with the employee before they make a specific deduction under a general deductions clause. The employee can vary or withdraw their written consent to a deduction by giving notice in writing at any time. The employer must then vary or stop the deductions within two weeks of receiving the notice or as soon as practicable.

When an employee leaves without giving their contractually agreed notice period

If an employee leaves their job and doesn’t give their employer the notice required in their employment agreement, an employer can’t make deductions or withhold their wages or holiday pay unless the employee has given their written consent. A written employment agreement may include a specific deductions clause giving the employer specific permission to deduct wages or holiday pay if an employee resigns without giving the required notice. This clause may be enforceable if:

• the employee has been given adequate opportunity to consider and ask for independent advice on the terms and conditions of the employment agreement; and
• the employee has signed the employment agreement; and
• any deductions from wages or holiday pay relying on that clause considers the actual loss suffered by the employer as a result of the employee failing to work their notice period; and the proportion of the notice period that the employee fails to work.

Although this is extremely irritating, it is illegal to make an arbitrary deduction from an employee’s pay for an early departure from the business. Making a deduction from wages for time unworked is called a “penalty clause,” and the Employment Relations Authority (ERA) has ruled several times that they are in breach of the law.

What are overpayments in limited circumstances

In limited circumstances, the employer can recover an overpayment for any period that an employer doesn’t have to pay wages because during that period the employee has:

• been absent from work without that employer’s authority;
• been on strike;
• been locked out (within the meaning of that subsection); and
• been suspended.

These are the only circumstances in which an employer can recover overpayment of wages as of right, without requiring the employee’s written consent, and only if it wasn’t practical for the employer to avoid the overpayment (due to the methods and equipment used to make payments).

The employer must give the employee notice of the overpayment that they will be recovering:

no later than 10 days after the employee’s next normal pay day if they don’t have a fixed workplace (fixed workplace means they work in one set workplace); or

if they have a fixed workplace, but don’t go there during normal working hours, then no later than the first day after the employee’s next normal pay day that they go to their workplace during normal working hours; or

if the worker has two or more fixed workplaces and didn’t go to either of them during normal working hours on the employee’s next normal pay day, then no later than the first day the worker goes to one of the workplaces; or

no later than the employee’s next normal pay day in any other case (legally it must be recovered within two months of letting the employee know).

Payroll overpayments

Where there has been a payroll error and the business has overpaid wages, it may make sense to deduct the overpayment from the employee’s next pay. However, this is not lawful, and while it was a genuine mistake, you cannot make this deduction without the employee’s consent.

If you do find that you have made an overpayment, we recommend requesting that employee pay back the money, or propose deducting it from their next pay (or over a series of pay periods).

Process to follow for wage deductions

As in most employment situations, the most crucial step for an employer to take is to consult with the employee before taking any action.

The employer should advise the employee in writing of the proposed deduction, the reason for it e.g., for a speeding fine in a company vehicle, how much and when you are proposing to take it from their pay. You must then seek their feedback and genuinely consider their response in making your final decision e.g. an employee may ask if it could be deducted in installments rather than a lump sum.

As discussed, an employee has to agree to the employer making a deduction from their pay in writing. However, if an employee refuses to reimburse the company for any monies legitimately owed, the employer may have an option to explore disciplinary procedures for failing to engage in good faith.

Making deductions from pay can be tricky, and there are other situations relating to making deductions that aren’t covered in this article. It is important that you get pay related matters right, so if you have any queries about making deductions from pay, please seek professional advice from ConsultingHQ before taking any action.

New minimum sick leave entitlement

Contents

• What is the change, and when does it start?
• Are casual employees entitled to sick leave, and the increase to 10 days?
• My team already gets 10 days sick leave per year – will their entitlement change?
• Will the number of sick leave days my employees can accumulate increase?
• Can I ask my employee for proof of injury or illness?
• If a team member doesn’t seem ‘right’ to work, can I require them to get a medical check-up?
• Reminder about the Covid-19 Leave Support Scheme
• What do I need to do to be ready for the change to 10 days sick leave?

As you will be aware, the Government has passed the Holidays (Increasing Sick Leave) Amendment Bill to increase the minimum employee sick leave entitlement. With the change being imminent, now is a good time to become informed about the change and some of the finer points. It also seems timely to remind ourselves of some of the other aspects of sick leave.

What is the change, and when does it start?

Most employees who have worked for an employer for six months or over (current continuous employment) are entitled to sick leave if they, or a dependent, are sick or injured. Currently, employees are entitled to 5 days of sick leave per year; however, from 24 July 2021 this will increase to 10 days per year. The entitlement to sick leave includes part time employees – irrespective of the hours worked.

Will all my employees get 10 days sick leave when it starts on 24 July?No. Existing employees will get the extra five days when they reach their next entitlement date – either after reaching 6 months’ employment or on their sick leave entitlement anniversary (12 months after they were last entitled to sick leave).

New employees i.e., those commencing employment with you from 24 July 2021 onwards will be entitled to 10 days sick leave from their entitlement date (i.e. six months from commencing employment with you). After the initial entitlement arises on reaching 6 months’ continuous employment, a further 10 days’ sick leave entitlement will arise for each subsequent 12-month period of continuous employment.

Are casual employees entitled to sick leave, and the increase to 10 days?

It depends on their work patterns. An employee is entitled to sick leave after they have completed 6 months’ current continuous employment with the employer or, if that does not apply, after the employee has over a period of 6 months worked for the employer for at least an average of 10 hours a week during that period and not less than 1 hour in every week or 40 hours in every month during that period.

My team already gets 10 days sick leave per year – will their entitlement change?

No. Employees who already get 10 or more sick days a year will not be affected by this change.

Will the number of sick leave days my employees can accumulate increase?

No. The maximum amount of unused sick leave that an employee can be entitled to will remain 20 days.

Can I ask my employee for proof of injury or illness?

Yes. You can require proof of illness or injury if the employee is away for three consecutive days. You may also require proof when the employee is away for less than three consecutive calendar days; in this case you must inform the employee as soon as possible of the requirement to provide a medical certificate and you must pay for the cost of the certificate.

If a team member doesn’t seem ‘right’ to work, can I require them to get a medical check-up?

While you cannot force an employee to have a medical examination, if an employer has good reason to believe that an employee is impaired (unwell or harmed) for any reason (whether from exposure to workplace hazards or other causes) then they may suspend an employee, subject to the usual legal requirements. It is important that you follow a good process in any situation like this. Therefore, we recommend that you seek professional HR advice from ConsultingHQ before taking any action if you are faced with this situation.

If an employee is required to provide proof of illness or injury in support of sick leave you may withhold payment for that sick leave until the required proof is provided. Proof of injury or illness includes a medical certificate.

Reminder about the Covid-19 Leave Support Scheme

Hopefully the need for this type of support is in the past, but it is good to remember that in case it is needed again the COVID-19 Leave Support Scheme is available for employers, including self-employed people, to help pay their employees who need to self-isolate and can’t work from home.

This means your workers can’t come into work because they are in one of the affected groups and have been told to self-isolate and can’t work from home.

To find out more, visit the www.workandincome.govt.nz/covid-19/leave-support-scheme/index.html.

In addition, the Government have a Short-Term Absence Payment which is available for employers to help pay their employees who cannot work from home while they wait for a Covid-19 test result. Further details are also on the Work and Income website.

What do I need to do to be ready for the change to 10 days sick leave?

You need to update your employment agreement template so that people commencing with you from 24 July onwards have the correct sick leave entitlement in their employment agreement. You will also need to ensure other documentation is updated e.g. policy and procedure manuals, employee intranet etc. Ensure your payroll provider/system has had the necessary updates to cope with the change in entitlement which will occur over a period of time with the existing team.

Working out sick leave entitlements can be complicated. If you have any queries about the law changes and need your employment documentation updated, or you just have a general query, please do not hesitate to contact ConsultingHQ for advice.

Paid Parental Leave in NZ Extends to 26 weeks  from 1 July 2020

Parental leave commenced on or after 1 July 2020 will have four additional weeks of Government funded paid parental leave than was previous allocated. It extends from 22 weeks (established 2018) to 26 weeks, enabling more New Zealand parents to spend time with new babies without financial burden. Parental leave is paid up to a maximum $606.46 before tax per week. If usual earnings are less than this amount, the employee’s full pay is paid.

This includes paid employment for self employed people. They would receive the equivalent of the minimum adult wage for ten hours per week if they were making a loss in their business. Criteria for eligibility for parental leave is unchanged. Employees are still required to provide details in writing to an employer regarding parental leave including the type of leave, commencement date and duration of parental leave. This may not be a discussion only – it must be formally documented.

If your employee’s partner or spouse is intending to take some of the paid leave, this must also be detailed. Employers may need to assist employees with this documentation and must respond formally within 21 days. If you are unable to keep an employee’s job open for the intended period of leave, you must declare this as part of your response.

The employee will have the right to disagree with this (and it must be apparent in your letter that this may be the case) – and the employee must be made aware that she or he will have the opportunity to consider other similar jobs for 26 weeks following their return to work date should their main job not be kept open for them. Employers do not have the right to decline parental leave and if they do so, employees may call the Labour Inspectorate for assistance on the matter.

The employer must also make it clear that the employee should confirm the return to work arrangement 21 days before returning and make clear the circumstances under which the employee may return to work early should she or he wish to. If you intend hiring a contractor for temporary placement for parental leave cover, you will also need to consider recent changes in the Triangular Employment Amendment Act 2020 – where employers of contractors may be served a personal grievance by an employee placed through a third party (effective June 2020).

If your employee raises a complaint around your management of the parental leave arrangement, it must be raised either 26 weeks after the event took place, 26 weeks from the expected date of birth or date of birth OR eight weeks after the end of any period of parental leave taken. Any problems arising must be made clear by the employee to allow you the opportunity to remedy the situation. If you require assistance, please let us know!