Can Employee Wages Be Deducted?

The question of “Can employee wages be deducted?” is a significant issue in labor relations between enterprises and personnel, particularly when employees cause property damage or violate labor discipline. Correctly identifying the grounds and limits for deductions helps employers prevent risks and protect their legitimate rights and interests. The following article by Long Phan Consulting Company will analyze in detail the current regulations related to this institution.

Can employee wages be deducted under law?

According to regulations in Clause 1, Article 102 of the Labor Code 2019, employers are only allowed to deduct employee wages in cases of compensation for damage caused by the employee damaging tools, equipment, or assets of the enterprise as prescribed in Article 129 of the Labor Code 2019.

This is the only case where the law permits wage deduction. Therefore, any act of deducting wages for other reasons such as penalties for labor discipline violations, lateness, failure to meet job targets (KPIs), or agreements contrary to regulations is considered illegal.

Regarding the conditions for compensation liability under Article 102 of the Labor Code 2019, this obligation only arises when the employee commits an act causing actual damage to the enterprise.

• In cases of non-serious damage due to negligence, the employee is only required to compensate within a certain limit, and the wage deduction must be performed via gradual monthly deductions.
• In cases of asset loss or material consumption exceeding the allowed quota, the compensation level is determined based on the actual market value of the asset or according to the legal internal labor regulations already promulgated.

Furthermore, employees have the right to clearly know the reason for the wage deduction. According to Clause 2, Article 102 of the Labor Code 2019, before implementing the deduction, the employer must specifically inform the employee of the cause, the extent of the damage, and the method of deduction. The compensation handling needs to be documented in writing to ensure transparency and the legal rights of the employee.

>>> See more: Salary in a Labor Contract: Calculation & Allowances

Employee’s wage deduction rate

Determining the level of wage deduction must strictly adhere to limits set by labor laws to ensure minimum income for employees and stabilize their lives. The law does not allow employers to freely decide the deduction rate but only permits it within certain limits.

Based on Clause 3, Article 102 of the Labor Code 2019, the monthly deduction level must not exceed 30% of the actual monthly salary paid to the employee. Accordingly, in all cases of compensation via wage deduction, the employer cannot deduct more than 30% of the actual salary in one pay period. If the compensation amount is large, the deduction must be allocated over subsequent months until fully recovered; it cannot be lumped entirely into one month.

Regarding the basis for determining compensation:

• Article 129 of the Labor Code 2019 stipulates that employees who damage tools, equipment, or assets must compensate according to the law or internal labor regulations.
• For non-serious damage due to negligence with a value not exceeding 10 months of the regional minimum wage, the maximum compensation shall not exceed 03 months’ salary, and recovery must be done through monthly deductions under Clause 3, Article 102.

Thus, employers are not allowed to deduct the entire salary of an employee in a single month, even in cases where the employee damages assets causing non-serious damage. Deductions must be made monthly and ensure the deduction level does not exceed 30% of the actual salary as prescribed by law.

Handling violations when employers illegally deduct wages from employees.

The act of deducting employee wages incorrectly according to legal regulations is considered a violation of labor law and is subject to administrative sanctions under current laws.

Based on Clause 2, Article 17 of Decree 12/2022/ND-CP, employers who deduct employee wages incorrectly are fined based on the number of employees affected. Specifically, the fine ranges from 5,000,000 VND to 50,000,000 VND for individuals, corresponding to violation thresholds from 01 employee to 301 employees or more.

According to Clause 1, Article 6 of Decree 12/2022/ND-CP, the above fine level applies to individuals. If the violator is an organization (enterprise, company, cooperative, etc.), the fine level applied is 02 times the fine for individuals. Thus, an enterprise with illegal wage deduction behavior can be fined from 10,000,000 VND to 100,000,000 VND, depending on the number of employees illegally deducted.

Besides monetary fines, employers are forced to implement remedial measures. Based on Point a, Clause 5, Article 17 of Decree 12/2022/ND-CP, the enterprise is obliged to pay the full wages illegally deducted to the employee, plus interest on the underpaid or late-paid amount. This interest is calculated based on the highest demand deposit interest rate of state-owned commercial banks announced at the time of sanctioning.

Labor consulting services at Long Phan Consulting Company

Long Phan Consulting Company provides comprehensive solutions related to human resource management, payroll, and labor discipline handling. Our team of experienced experts will support enterprises in building strict internal management processes and absolute compliance with current legal regulations. Our support is structured into the following key areas:

1. Building and Reviewing Legal Frameworks

• Support 1: Draft or review Internal Labor Regulations, focusing specifically on provisions regarding asset protection and material responsibility.
• Support 2: Construct standard forms and templates for handling compensation to ensure procedural validity.
• Support 3: Advise on legal compliance for internal policies to prevent future disputes regarding deductions.

2. Procedure Execution and Dispute Prevention

• Support 1: Identify legal grounds and verify conditions for compensation liability in specific actual cases.
• Support 2: Guide and participate in organizing meetings to handle material responsibility according to the correct legal sequence and procedures.
• Support 3: Draft meeting minutes and compensation decisions to ensure transparency and legal enforceability.

3. Calculation and Representation

• Support 1: Advise on determining the monthly wage deduction level and roadmap, ensuring it strictly adheres to the “not exceeding 30% of actual salary” rule.
• Support 2: Represent the client (within the scope of authorization) to work directly with employees regarding the deduction plan.
• Support 3: Assist in resolving complaints or disputes arising from wage deduction decisions.

Frequently Asked Questions

Below are some frequently asked questions about wage deductions for employees; please refer to them:

Can a company deduct employee wages for reasons such as arriving late for work or failing to meet KPIs?

No. Labor law strictly prohibits using fines or salary deductions as a substitute for disciplinary action. Being late for work or failing to meet KPIs falls under the scope of disciplinary violations or performance evaluations, and is not permitted for salary deductions under Article 102 of the 2019 Labor Code (which only applies to compensation for property damage).

(Legal basis: Articles 102 and 127 of the 2019 Labor Code.)

Are social insurance contributions and personal income tax included in the 30% salary deduction limit?

No. The deductions for Social Insurance (BHXH), Health Insurance (BHYT), Unemployment Insurance (BHTN), and Personal Income Tax are legally mandated contributions, not “salary deductions” for compensation for damages as per Article 102. The 30% limit only applies to compensation for damages deducted from the actual salary paid after all tax and insurance obligations mentioned above have been fulfilled.

(Legal basis: Article 102 of the 2019 Labor Code.)

How should “actual wages paid” be interpreted when calculating the 30% deduction ceiling?

Net pay is the amount of salary an employee actually receives after deducting mandatory contributions (social insurance, health insurance, unemployment insurance) and personal income tax (if applicable). Businesses are only allowed to deduct a maximum of 30% of this net amount, not the gross salary stated in the employment contract.

(Legal basis: Clause 3, Article 102 of the 2019 Labor Code.)

If an employee quits before all severance pay has been deducted, is the employer allowed to retain the entire last month’s salary?

In principle, the regulation stipulates a maximum deduction of 30% from “monthly salary.” However, upon termination of an employment contract, both parties are obligated to fully settle all amounts related to each party’s benefits within 14 days (which may be extended to 30 days). In this case, the employer has the right to request the employee to pay off all debts, but unilaterally deducting 100% of the last month’s salary requires caution and should be documented in writing to avoid legal disputes regarding unauthorized salary withholding.

(Legal basis: Articles 48 and 102 of the 2019 Labor Code.)

Does a company need to hold a meeting to address financial liability before deducting wages?

Yes. Salary deductions are a method of enforcing compensation for damages. To determine the amount of compensation, the employer must follow the procedures for handling material liability, including organizing a meeting with the participation of the employee representative organization (trade union) and the employee who caused the damage, and must also prepare minutes of the meeting before issuing a compensation decision.

(Legal basis: Article 130 of the 2019 Labor Code, Article 71 of Decree 145/2020/ND-CP.)

>>> See more: PIT Finalization Declaration: Employer Guide

Conclusion

Compliance with regulations on whether employee wages can be deducted is a key factor in building a professional working environment and avoiding severe administrative penalties. If you need detailed advice on the process of handling material responsibility or calculating accurate damage compensation levels, please contact Long Phan Consulting Company immediately via Hotline 1900636389 to resolve all legal obstacles most effectively.