I’ve been getting questions whether an employer is allowed to deduct wages of an employee in particular events and I thought it would be a good time for me to elaborate on this.
The law with regards to deduction is found under s.24 of the Employment Act 1955. I will have to say that s.24 is a long provision and it will not be very convenient and reader friendly for me to reproduce the entire section. I will however urge readers to look up this section.
In this post, I will shift my focus into providing a solution for deductions not listed as a lawful deduction under s.24. I shall use the following example as an illustration.
— ABC company runs a courier company and has 10 lorry drivers. Mr.X a family man was having trouble with finances and obtained a loan from the company of RM500 payable within 2 months, free of interest. One day, he was tired from work and when he was approaching the office premise, he accidentally drove into the fish pond, causing damage to the pond and the lorry, both amounting to RM2,000. How can the company reclaim these monies from Mr.X?
There are 2 parts to this question. I will firstly deal with the loan.
A loan, free of interest is known to be a lawful deduction under s.24(c). ABC company do not need to obtain consent for this deduction but the deduction amount cannot be more than 50% of Mr. X’s monthly wage. Say for example Mr. X is earning RM700 a month, the maximum deduction in a month cannot be more than RM350. This is provided for under s.24(8).
Secondly, we now have to deal with the problem of reclaiming monies for the damage caused by Mr. X to the lorry and the fish pond. This is obviously not provided for under labour laws so in other words, ABC Company can seek recourse in the civil courts. This might be costly. My solution to this problem is to break away from s.24 by interpreting the section broadly. Because s.24 uses the word ‘wages’ and s.2 of the same Act excludes several items as wages (look at my previous post), it means we can deduct from those exceptions and s.24 won’t come into play at all. So, if the total claim is RM2,000 and Mr. X is getting a fixed traveling allowance (not wages under s.2) of RM500 per month, company X can deduct his travelling allowance for 4 consecutive months in order to remedy for the losses. Alternatively, company X can save it till bonus period (also not wages under s.2) and take a lum sump of the bonus. (note that some problems may arise in contractual bonuses, but if it is a non-contractual bonus, by all means, go ahead). Lastly, if a well-planned company has a non-contractual incentive scheme, any deductions can be made from the incentive scheme so long as the payments involved does not fall under the definition provided under s.2 of the Act. In other words, if a company properly constructs their entire wage and incentive system, s.24 is not something that bothers the company at all! 🙂
I apologise for being fairly technical in this post, but do consult / call me for further clarification on this matter.