Deducting Overpayments from Wages

The Ministry of Labour has recently come out with an animated (and fairly entertaining) video on employee deductions titled Illegal Deductions from Wages.

The MOL stresses that deductions from employee wages are not allowed except in “specific circumstances”.  While this is helpful in reinforcing the general rule that deductions from employee pay are generally restricted under the Employment Standards Act, 2000 (ESA), it is important to remember what these “specific circumstances” entail.

Under s. 13 of the ESA, the “special circumstances” when employers may deduct from employee’s “wages” are as follows:

  1. Where authorized by a statute or Court Order to pay to a third party.
  2. Where the employee agrees to the deduction in writing except where: (a) the employee’s consent does not relate to a specific amount or formula to calculate the deduction; and (b) in situations of faulty work, cash shortages or lost/stolen property.

There is another “special circumstances”, though it is not specifically set out in the statute. This relates to errors in pay. Sometimes an employer will make an error in payroll or otherwise inadvertently overpay an employee. Because the prohibition on deductions applies to “wages”, and because an overpayment is not technically “wages” (as the employee was not entitled to it in the first place), the employer may deduct the overpayment from wages. However, the result should not cause the employee to be paid less than the minimum wage (though keep in mind that minimum wage compliance is determined on a pay period basis and not “per hour”).

As a best practice, if there is an error in payroll, employers should be aware that an employer may collect the money from employees via payroll deduction. While consent is not technically required, it is nonetheless a good practice to ensure that employees are made aware of the error and are notified of future deductions or ideas for a repayment plan. For those employers with unionized employees, the collective agreement should be reviewed as many collective agreements, especially in the broader public sector or for smaller employers, have specific rules to recover overpayments.

collective agreement Court Order Employment Standards Act ESA minimum wage Ministry of Labour MOL Ontario Ministry of Labour overpayment repayment s. 13 section 13 Special Circumstances third party unionized employee wage deduction



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