How can employers make legitimate deductions from an employees pay under the Ontario Employment Standards Act?

May 13, 2013 Simon Heath, BA, MIR, LLB, Heath Law Employee Relations, Employment/Labour Standards, Human Resources, Payroll, Source Deductions and Reporting, Wages and Compensation

A situation that arises all the time is whether an employer can deduct the full amount of a loan, an overpayment, the cost of faulty work, cash shortages or stolen goods or the costs of their uniforms. The issue of employer deductions is governed by section 13 of the Ontario Employment Standards Act (ESA) and a clear understanding of the rules will avoid disputes and potential claims by the employee to the Ministry of Labour, Employment Standards Branch.

Section 13 of the ESA outlines the rules regarding the deductions of “wages” and it provides as follows:

Employers can make any and all statutory deductions to wages required by either Ontario or Federal law. This includes deductions for income tax, Canada Pension Plan and Employment Insurance.
Employers can garnish an employee’s wages if there is a valid Court Order imposing the garnishment. Employers must comply with the limits to the amount of garnishments outlined in the Ontario Wages Act.
All other deductions can only be made so long as the employee has signed a written statement allowing the deductions in what is known as a “written authorization” (i.e. the repayment of a loan). The written authorization must state that a deduction can be made from the employee’s wages and it must refer to a specific amount of money to be deducted or provide a formula from which a specific amount can be calculated (oral agreements and/or authorizations without a specific amount or formula and/or blanket authorizations in an employment agreement are not enforceable).
Employers are forbidden from making any deductions from an employee’s wages for faulty work which includes damaged property or situations where cash is missing and the individual did not have total control over the lost or stolen cash.

The one issue not expressly covered by section 13 but address by the Employment Standards Branch policies is the issues of overpayments. Given overpayments are not technically “wages” because an employee did not earn them, an employer can deduct the overpayment so long as the employee still earns at least his/her minimum entitlements. Because this can result in unfairness, it is often recommended that if overpayments are “significant”, the employer should advise the employee of the overpayment and then agree to deduct the overpayment in installments that are less burdensome to the employee (although express consent is not required).

Simon Heath LL.B, M.I.R.
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Simon Heath, BA, MIR, LLB, Heath Law

Employment Lawyer and principal at Heath Law, Employment Lawyers

Simon Heath, BA, MIR, LLB, is the Principal of Heath Law, Employment Lawyers in Mississauga, Ontario. Simon represents both public and private-sector employers and employees (unionized and non-unionized) at all stages of the employment relationship with a focus in the areas of employment law, labour law and human rights law; these representations are made at all levels of courts and all administrative tribunals. Read more