Set-off of employees’ debts

Set-off of employees’ debts - Alasivu

If an employee owes money to their employer, the employer can usually deduct the debt from the employee’s wages. However, the Employment Contracts Act lays down certain limits to employers’ right to deduct debts from wage payments, which employers must take into consideration.

There are certain limits to employers’ right to deduct employees’ debts from their wages.

Employees can owe money to their employer if, for example,

  • they have borrowed money from their employer
  • they have purchased goods or services from their employer
  • they have been paid a part of their wages in advance
  • they owe damages to their employer.

Employees’ debts can only be deducted from their wages if the debt is unequivocal and uncontested. If, for example, an employer is seeking damages from an employee and the employee denies liability for the loss, the employer cannot deduct the amount from the employee’s wages. Only debts that have been formally brought to the debtor’s attention can be deducted from their wages.

Limits to employers’ right to set off employees’ debts

The Finnish Employment Contracts Act sets certain limits to employers’ right to deduct employees’ debts from their wages. By law, employers cannot set off employees’ debts against those portions of their wages that cannot be attached pursuant to the Enforcement Code (705/2007).

Prior to deducting debts from employees’ net wages, employers must establish the protected portion that must, pursuant to the Enforcement Code, be left for each debtor. Employers also need to find out the maximum amount that they are permitted to deduct from their employees’ wages in order to set off debts. More information about protected portions and calculating the amount that can be set off is available on the enforcement authorities’ website.

Provisions on the definition of “wages” in the context of enforcement are laid down in Chapter 4, Sections 45–47 of the Enforcement Code and provisions on the amount of wages that can be attached in Sections 48–55.

Effect of advance wage payments on the protected portion

Any wages paid to employees in advance can be deducted in full.

If an employee owes their employer money for goods or services, for example, the employer can deduct any advance wage payments made to the employee from their net pay before calculating the portion of the money owed for goods and services that can be set off pursuant to the Enforcement Code.

The limits to employers’ right to set off employees’ debts are enshrined in law. The limits cannot be deviated from by introducing provisions that undermine employees’ rights into employment contracts, collective agreements or otherwise. Employers have a duty to reimburse employees for any losses incurred as a result of unlawful set-offs. Employers who breach the statutory set-off limits can also be fined for violating the Employment Contracts Act.