Deductions from Wages

Deductions can only be made from wages under very specific circumstances. The Ontario Employment Standards Act (ESA) clearly defines these circumstances as follows:

Deductions, etc.

13(1) An employer shall not withhold wages payable to an employee, make a deduction from an employee’s wages or cause the employee to return his or her wages to the employer unless authorized to do so under this section. 
Statute or court order(2) An employer may withhold or make a deduction from an employee’s wages or cause the employee to return them if a statute of Ontario or Canada or a court order authorizes it.

Employee authorization

(3) An employer may withhold or make a deduction from an employee’s wages or cause the employee to return them with the employee’s written authorization. 

(4) Subsections (2) and (3) do not apply if the statute, order or written authorization from the employee requires the employer to remit the withheld or deducted wages to a third person and the employer fails to do so.

Same

(5) Subsection (3) does not apply if,

(a) the employee’s authorization does not refer to a specific amount or provide a formula from which a specific amount may be calculated;

(b) the employee’s wages were withheld, deducted or required to be returned,

(i) because of faulty work,

(ii) because the employer had a cash shortage, lost property or had property stolen and a person other than the employee had access to the cash or property, or

(iii) under any prescribed conditions; or

(c) the employee’s wages were required to be returned and those wages were the subject of an order under this Act.

This article reviews this section of the ESA.

Statutory Deductions

Under law, your employer must take money from your pay for things like:

• Income tax
• Employment Insurance (EI) premiums
• Canada Pension Plan (CPP) contributions

Court Ordered Deductions

Additionally, the court can ask employers to deduct from wages as part of a court order. These circumstances are often referred to as having your wages “garnished”. The court order specifies how much money your employer can deduct and who to pay it to. 

For example, if you have been ordered to pay child support through a court order, the court can then order your employer to take this money from your pay and send it to the Family Responsibility Office. 

What is the Maximum Amount a Creditor Can Garnish my Wages?

Under the Ontario Wages Act, the maximum a creditor can garnishee is 20% of your gross wages for a debt or 50% for child support.

Written Authorizations for Deductions

Another circumstance under which an employer is allowed to deduct wages is if you (the employee) provide written authorization to do so. For example, jobs often come with additional costs such as for uniforms or car allowances which can be deducted through wage deductions.

A decision in Kennels v. Carbonneau, 2007 CanLII 3960 (ON LRB) illustrates the importance of having written authorization. In this case, an employee borrowed money from her employer as a loan to assist her with some financial troubles that she was facing. This loan was given by the employer as an act of “good will” and it was agreed orally that it would be repaid through deductions from her wages. The court concluded:

There is no suggestion that there was written authorization for the deductions or that a court order required that they be withheld.  Accordingly, in my view the deductions were clearly illegal and were an ongoing breach of the Act. 

The employer was completely unaware that a written agreement was necessary for such deductions.

When Are Deductions Illegal?

Even if an employee agrees in writing, there are certain situations where a deduction may not be made. 

Here are a few examples of circumstances in which an employer cannot take money from employees:

• Breaking tools or equipment;
• Losing or stealing property;
• Faulty products or work;
• Making a costly mistake;
• Cash shortages when more than one individual has access to a cash register.

With regards to tips and other gratuities:

• An employer cannot withhold them or make deductions from employees’ tips to cover things like spillage, breakage, losses or damage etc.

However there are two situations whereby an employer can withhold, make deductions or make an employee return tips and other gratuities as follows:

• Pursuant to a court order or statue or
• Redistributing them as part of a tip pool

The ESA does not specify any regular period for distributing tips and other gratuities but an employer’s failure to distribute them within a reasonable time frame may be construed as withholding them. The determination of whether or not the delay was “reasonable” will depend on the case circumstances. Tips and gratuities should be distributed in cash, cheque or direct deposit.

Tip pool arrangements may be written or verbal. Under the ESA, an employer does not need to have an employees’ agreement to make deductions from their tips and other gratuities if the amount deducted will be reallocated among other employees as part of a tip pool. Participation in a tip pool may, in fact, be a condition of employment.

Definition of Wages

In assessing whether deductions were legal or not, courts take care to assess whether deductions pertained to wages or something else. For example, an employee may be provided with a car allowance. If that employee does not need to drive a car for work, this may be considered part of the employee’s compensation package as wages. However, if that employee is required to use a car for work, then under these circumstances, the car allowance might be considered either reimbursement of an expense or a travel allowance – but not wages: Quirke v Nationwide Auto Warranty Corporation, 2008 CanLII 40886 (ON LRB)

Legally speaking:

• Other than requirements under statute or court orders, employers cannot deduct or withhold wages without prior written authorization
• The written authorization must be very clear and specify an amount to be deducted/withheld
• There are specific circumstances where deductions or withholding of wages is illegal. For example, deductions cannot relate to faulty work regardless of whether or not the employee provided written authorization. 
• Courts pay careful attention to circumstances of the cases to clearly establish what can be defined and considered as “wages”.