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Employer Deductions From Employee Wages in Ontario

In the Employment Standards Act, 2000 (ESA), there are rules for how employers are permitted to make deductions from their employee’s wages.

What’s the Difference Between Salary and Wages?

Salary is not defined in the ESA, but a definition can be found in the Merriam-Webster Dictionary as “fixed compensation paid regularly for services”. In the Ontario Wages Act, “wages” is defined as wages or salary. Practically, wages include an employee’s salary or hourly pay, depending on the nature of the employment agreement. This understanding is important because the ESA allows for deductions that are specific to wages. Certain forms of compensation that employees may receive, that are not considered wages, are subject to slightly different rules.

In the ESA, wages are defined as:

  • (a)  monetary remuneration payable by an employer to an employee under the terms of an employment contract, oral or written, express or implied,
  • (b)  any payment required to be made by an employer to an employee under this Act, and
  • (c)  any allowances for room or board under an employment contract or prescribed allowances

Within the same definition, the ESA also describes what is not considered an employee’s wages. Excluded from wages are tips; gifts or bonuses that are given at the discretion of the employer; expenses and travel allowances; and employer contributions to benefit plans. Under this definition, any payment required under the ESA is considered part of employees’ wages. This means that vacation pay, for example, would be part of an employee’s wages, but a service worker’s tips would not be.

When employers pay employees wages, they must provide a statement of wages. Under section 12 of the ESA, employers are required to give employees a written wage statement, either on paper or by electronic mail, that includes:

  • The dates of the pay period
  • If applicable, the wage rate
  • The gross amount of wages
  • The amount and purpose of any deductions
  • Any amount that pertains to coverage of room and board
  • The net wages

Therefore, it is required that employers give detailed information within employees’ wage statements about deductions that are made, the amounts that are deducted, and the purposes of each deduction.

What Can Employers Deduct From an Employee’s Wages Under the ESA?

Employers are not allowed to make deductions from employees’ wages unless authorized under section 13 of the ESA. This authorization may come from a statute, court order, or written authorization from an employee:

  • Statutory authorization is common, typically in the form of employers making deductions for income tax, Canada Pension Plan contributions, and employment insurance premiums.
  • A court order may allow deductions in the form of garnishment of an employee’s wages, subject to limits outlined in section 7 of the Wages Act. Wages can be garnished with up to a maximum of 20% for debts and up to a maximum of 50% for an order of support.
  • If receiving authorization from an employee, authorization must typically specify in writing that there will be a deduction from wages, and there must be a specific amount or formula that would allow for the calculation of an amount.

Can Employers Deduct From Wages Without Consent?

Employers do not need consent to deduct wages if they have statutory authorization or a court order. If the deduction is not authorized by statute or court order, employers cannot make deductions from employees’ wages without consent.

Can Employers Deduct Wages for Mistakes?

Under section 13(5)(b), employers are not permitted to withhold, deduct, or require the return of wages from employees for faulty work, due to a cash shortage, lost property, or the theft of property (if a person other than the employee had access). Faulty work can include damage done to company cars, tools, or even a credit card transaction that went awry. Even if written authorization exists, an employer cannot deduct the wages of an employee in these circumstances.

Can An Employer Deduct Wages If An Employee Resigns?

If there is written authorization that stipulates that a reasonable amount will be deducted in the event of a sudden resignation, then this may be allowed. In this case, the deduction must be proportional to the damages that would arise, for example, if the employer had to find a substitute person to fill the role due to the resignation. The amount cannot be large enough that it would be considered a penalty, but a small deduction can be made if the employer signs written authorization for the deduction to be made.

This principle comes from the Ontario Labour Relations Board’s 2016 decision of Rainbow Concrete Industries Limited v Kavan Cheff-Burns, where Mr. Kavan Cheff-Burns had, in his employment agreement, authorized the deduction of $1500 in the event of early departure. Upon resignation, his employer deducted $1152.06 from his final paycheque, which left Mr. Cheff-Burns with a final paycheque of $0. The Board reasoned in paragraph 20 that “an employer’s ability to deduct from an employee’s wages is an extremely powerful tool when one considers that employers, as paymasters, have complete control over employees’ wages”, and that the purpose of section 13 of the ESA is to limit this tool and protect the interests of employees. The Board found the amount deducted to be a penalty, rather than a true deduction, and found the deduction to be unacceptable.

Can An Employer Deduct From An Employee’s Tips?

As tips are not considered part of an employee’s wages, the rules that address deductions from tips are contained under a separate section of the ESA from those that address deductions from wages. Briefly, employers are not allowed to make deductions to an employee’s tips except in certain circumstances. Permissible deductions of an employee’s tips are addressed in sections 14.3 and 14.4 of the ESA and are limited to statute or court order authorization of the deduction, or employer operation of a tip pool. Employers are not allowed to make deductions to an employee’s tips for losses such as those from breakage or spillage.