Employment lawyer looks at when money can be taken out of someone’s paycheque – and it’s about more than gaining permission
Managing payroll is one of the most sensitive and compliance-heavy responsibilities for HR leaders and their teams. A payroll-related issue that has come up frequently so far in 2026 is what, if any, deductions can be made from wages during or at the end of employment.
While deductions from pay may seem straightforward and, in many cases, practical and fair, Canadian employment standards legislation imposes strict rules on when and how employers can lawfully withhold amounts from an employee’s earnings.
Each province and territory has employment standards legislation that will set out the legal parameters for deductions from wages, as well as the consequence for failing to comply, which can include complaints, penalties, and reputational damage.
The general rule: wages must be paid in full
Across Canada, employment standards legislation establishes a baseline principle: employees are entitled to receive all wages they have earned. Employers cannot make deductions unless they are specifically authorized by law or by the employee under defined conditions.
While the exact statutory language differs between provinces and territories, the core framework is consistent. Deductions generally fall into three categories:
- statutory deductions
- court-ordered deductions
- employee-authorized deductions
Understanding the boundaries of each is essential.
Statutory deductions: Statutory deductions are the most straightforward. Employers are required by law to withhold certain amounts from employee wages, including:
- income tax
- Canada Pension Plan (CPP) contributions
- Employment Insurance (EI) premiums
These deductions do not require employee consent and must be remitted to the appropriate authorities. HR teams should ensure payroll systems are up to date with current rates and thresholds to avoid compliance issues.
Court orders and garnishments: While it may be an uncomfortable process, employers may be required to deduct wages pursuant to a court order, such as a garnishment of wages. Garnishment often arises in the context of family support obligations or debt enforcement, like unpaid taxes owed to the CRA.
When served with a garnishment order, employers must comply strictly with its terms, including limits on the percentage of wages that can be deducted. Each province has its own rules regarding how much can be deducted. For example:
- In Ontario, the Wages Act governs garnishments and sets limits (e.g., generally up to 20 per cent of wages for most debts, higher for support orders).
- In BC, the Court Order Enforcement Act provides similar frameworks, including protected earnings thresholds.
HR teams should ensure payroll teams in their organizations understand that these are not discretionary deductions — failure to comply can make the employer liable for the amounts owed.
Confidentiality is also critical. Garnishments should be handled discreetly, with limited internal disclosure on a need-to-know basis.
Employee authorization
At first glance, employee authorization might seem like a flexible tool for managing deductions. However, employment standards legislation places important restrictions on what can be deducted. Even employee consent does not give employers unlimited flexibility in making deductions!
Most jurisdictions require that any deductions authorization:
- be in writing and be authorized at the time of the deduction
- specify the exact amount or a clear method of calculation
- be given voluntarily (i.e., not as a condition of employment).
Under the Ontario Employment Standards Act, 2000, any deduction must be authorized in writing and must either:
- specify a fixed amount, or
- provide a clear formula for calculating the amount.
BC similarly requires specific, written authorization. The deduction must also be clearly identified, and the employee must clearly understand what they are agreeing to have deducted from their pay.
Authorized deductions must be voluntary
In both provinces, consent must be genuinely voluntary. Requiring employees to sign broad or general deduction authorizations as a condition of employment is risky and often unenforceable. Therefore, the age-old clause in an employment agreement allowing the employer to deduct “any amounts owed” will most likely be deemed an attempt to contract out of the employment standards legislation and therefore be unenforceable.
Similarly to the above issues, we are often asked to advise on potential recovery from an employee to whom an overpayment was made. Candidly, these can be tricky situations. While they are one the few areas where employers have some flexibility, caution is still required.
In these situations, employers often have three main choices:
- Get agreement from the employee to make one or more deductions from their pay to cover the overpayment.
- Pursue overpayment in court (while recognizing that a lawsuit against one’s own employee is contrary to an ongoing employment relationship, raising other potential issues).
- Accept the overpayment as an error and waiving any recovery.
In most cases, employers will try to explain the issue to the employee and agree on repayment by way of pay deductions. However, there are some specific considerations:
- Employers can recover overpayments with consent but it is important to get written employee agreement before making any specific overpayment deduction from wages, setting out the amount of the deduction and what it is for (i.e. “repayment of wage overpayment on pay period x” for example).
- All deductions must be clearly itemized on pay statements.
- Deductions cannot reduce the employee’s effect pay rate to less than the applicable minimum wage in the jurisdiction.
- Authorization and record-keeping processes should be done each time a deduction is made (for example, if deductions are made over multiple pay periods).
Prohibited deductions: a common pitfall
One of the most significant compliance risks arises from prohibited deductions. Even where an employee agrees, certain types of deductions are not allowed.
A common example is deductions for cash shortages, lost property, or damage where other individuals had access. In many jurisdictions (including Ontario and British Columbia), employers cannot deduct for:
- cash register shortages
- customer theft (e.g., dine-and-dash incidents)
- lost or damaged equipment.
This is especially true where the loss cannot be clearly attributed to the employee’s actions alone.
Ontario is especially explicit in that employers cannot deduct for these types of losses if the employee did not have sole control over the situation even with explicit authorization for the deduction.
BC takes a similar approach, prohibiting deductions where multiple employees had access or where the loss cannot be directly attributed to one individual.
Therefore, unless a loss cannot be clearly attributed to one individual, deductions and even authorized deductions will likely be deemed in violation.
Practical tips for compliant deductions
To reduce risk, HR professionals should:
- Be aware of the relevant legislation in place in the jurisdiction.
- Review deduction policies to ensure they align with provincial legislation.
- Eliminate broad or vague authorization clauses from employment agreements.
- Use standalone, specific authorization forms where needed.
- Train managers, especially in frontline industries, on prohibited deductions.
- Audit payroll practices regularly for compliance gaps.
- Address overpayments carefully, with clear documentation and employee agreement.
While deductions can be made to employee wages, the takeaway is clear: even seemingly reasonable deductions can be unlawful if they do not meet strict statutory requirements. A cautious, well-documented approach — grounded in the specifics of each province’s legislation — is essential.
Done correctly, payroll compliance not only avoids legal risk but also reinforces trust and fairness in the workplace.
Richard B. Johnson is a partner and co-founder at Ascent Employment Law in Vancouver.
