Payroll Deductions - NOT to be used as an Employee Penalty

Posted in General, Payroll

You should be aware that under the Ontario Employment Standards Act (ESA), only three types of deductions can be made from an employee’s wages: statutory deductions; deductions authorized by a court order; and, subject to certain restrictions and conditions, deductions authorized by the employee in writing.


Many businesses are not aware that under the provincial and federal employment standards regulations, an employee’s pay is protected in that only certain deductions are permitted. Most of us are aware of the mandatory payroll deductions for Income Tax, Canada Pension Plan, Employment Insurance and perhaps garnishees and other court ordered deductions.

However, every day some employers incorrectly process deductions which are not permissible such as restaurants deducting servers’ wages when one of

the customers in their section of the restaurant “dines and dashes” (i.e. leaves without paying for their food and beverages). Other employers may subtract the insurance deductible from an employee’s wages based on their vehicle insurance plan if an employee is operating the company vehicle and causes an accident.

Many other employers feel they should have the right to deduct from an employee’s wages if the employee makes an error or mistake in the performance of his/her job which results in unnecessary expenses to the company; perhaps causing unnecessary waste or poor work which results in extra costs for redoing customer orders. But, in fact, these types of payroll deductions are considered violations of an employee’s rights under Employment Standards legislation for both provincially and federally regulated employees.

The appropriate recourse for an employer may be to issue progressive discipline for unacceptable behaviour but certainly not to process a deduction of their wages.

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