Employers can make only authorised deductions from employees’ wages.
Payment that is due from an employee to the employer or their agent is a deduction. However, if an employee has a loss of wages for good reasons, such as the employer withholding a promotion or increment, demoting or suspending an employee, etc. that is not a deduction1.
Some of the major permitted deductions are related to2:
- Fines imposed on the employee: An employer can fine an employee (not below fifteen years) up to three percent in any wage period for doing or failing to do certain acts. Before imposing the fine, the employer must first give the employee a chance to explain themselves. The employer must recover the fine within ninety days of the employee’s violation. The employer must keep a record of the fines in a register and use them for the benefit of the employees3.
- Absence from duty: An employer can deduct wages if the employee is absent from their designated workplace (this does not include leaves). This includes an employee being present but refusing to work due to a stay-in strike or any unacceptable reason4.
- Damage or loss of goods: An employer can deduct wages if an employee damages or loses goods entrusted to them, or loses money accountable to them. The damage or loss should be directly due to their neglect or default. The deduction should not be more than the amount of damage or loss, and the employer must first give the employee a chance to explain themselves. The employer must keep a record of such deductions5.
- Facilities and services given by the employer: The employer can deduct wages if they have given employees house-accommodation, or services other than what is required for employment. The deduction should not exceed the value of the facilities and services. The employer cannot make this deduction unless the employee has accepted the facility or service as a term of employment6.
- Recovery of advances: The employer can deduct wages to recover any advances (including travelling allowance) given to the employee along with the associated interest, or for adjusting an overpayment of wages. If the employer gave the advance before the employee started employment, they can recover the money from the first payment of wages, but cannot recover advances given for travelling expenses7.
- Recovery of loans: The employer can deduct wages from employees for recovering loans made from labour funds or loans given for building houses, etc. along with the associated interest8.
- Other deductions: Employers can deduct wages for subscribing to social security funds like provident or pension funds, for paying an employee’s membership fees to Trade Unions, deductions for income-tax purposes, etc
The total amount of deductions cannot be more than fifty percent of the wages, and the employee can recover any excess deduction.90
- Section 18(1), Code on Wages, 2019.
- Section 18(2), Code on Wages, 2019.
- Section 19, Code on Wages, 2019.
- Section 20, Code on Wages, 2019.
- Section 21, Code on Wages, 2019.
- Section 22, Code on Wages, 2019.
- Section 23, Code on Wages, 2019.
- Section 24, Code on Wages, 2019.
- Section 18(4), Code on Wages, 2019.