Payroll Deductions: What Does It All Mean?

As an employee in Ontario, there are specific deductions that employees are supposed to see coming off their paycheque that their employer is required to make in order to comply with legislation. There are several types of deductions that are required and some that are optional.

Statutory Deductions

These deductions are required by law for an employer to deduct from your paycheque by law.  These deductions include income tax, contributions to employment insurance and contributions to an employee’s Canada Pension Plan.  An employer is required to withhold these funds from your paycheque and remit them directly to the Canada Revenue Agency (“CRA”).

What should you do if your employer is not deducting statutory deductions from your paycheque?

If your employer considers you as an independent contractor, they may not be deducting any funds from your paycheque and remitting them to the CRA.  As an independent contractor, the employer is not required to remit these deductions and it becomes a worker’s responsibility. Independent contractors are not protected by the Employment Standards Act, 2000.

However, workers who remit their own taxes may not be truly independent contractors, depending on the circumstances of their work. There is a possibility that a worker may be a misclassified employee, and therefore are not required to remit deductions from your pay to the CRA, along with being able to enjoy the protections of being an employee.

Optional Deductions

There are optional deductions that employees are able to opt into depending on the employment arrangement with the employer.  These deductions can include pension, group insurance plans (benefits) and RRSP’s.  Usually, employees are required to submit documentation consenting to the employer making these deductions or agree to the deductions within the employment contract.

Court Ordered Deductions

The Court may order that money be deducted from a worker’s paycheque as a result of an outstanding debt; this is called a garnishment.  The Court Order must specifically state the employer may make a deduction from the worker’s wages for this reason.  If the money is owed to a third party, the employer must remit any deducted wages to a court clerk or other official who will then pay the funds to the third party.  The employer is unable to deduct the funds from a paycheque if this is not the case.

It is important to note that an employer should not terminate an employee’s employment as a result of a Court Order for garnishment. Employers who do so may find themselves liable for additional damages on top of any wrongful dismissal damages.  

Written Authorization

Workers are able to provide written authorization to their employer to deduct additional wages from their paycheque, provided that the authorization specifies that the deductions can be removed from the paycheque, the sum to be removed and how it is calculated.

As an employer, you are not allowed to deduct any wages from an employee’s paycheque as a result of defective work of the employee or if funds are lost or property is stolen.  The Employment Standards Act, 2000 (“ESA”) indicates specific circumstances wherein deductions are authorized from an employee’s wages.  Section 13 of the ESA states that specific circumstances are as follows:

  1. Where authorized by statute or Court Order to pay to a third party; and
  2. Where the employee agrees to the deductions 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.

Employers can make deductions for an error in payroll, otherwise known as an overpayment to the employee.  An overpayment to an employee is not considered wages and therefore the ESA does not prohibit the deduction from the employee’s paycheque.  However, employers are unable to deduct so much from the employee’s paycheque as a result of an overpayment wherein it would cause the employee to be paid less than the minimum wage.

The Bottom Line

As an employee, if you are unsure if your employer is making appropriate deductions to your paycheque or you are being threatened with termination should you be subject to a garnishment or you will not agree to additional deductions by your employer, or have concerns about your status as an employee or independent contractor upon termination, contact Monkhouse Law for a free consultation to discuss your rights.

As an employer, you have an obligation to remit statutory deductions to the CRA for every employee.  If you are unsure if you are required to make these statutory deductions to staff paycheque, contact us today to see how you can protect your business.


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