Salary in Employment Relationships – Rules on Determination, Payment, and Payroll Deductions
The central obligation of the employee is to make their labor available, while the employer's main obligation is to pay compensation (salary) for this labor. This chapter provides an overview of the main rules related to salary in employment relationships, from determination and various salary systems to payment, salary deductions, and the statute of limitations on salary claims.
Basic Principles for Salary
Although the concept of salary is not uniformly defined in Norwegian law, the Working Environment Act contains several provisions that regulate salary-related issues. The employment contract must include information about agreed salary, any supplements, payment method, and timing for salary payment, cf. Working Environment Act § 14-6 (1) letter i.
The starting point in Norwegian law is that:
The employee has a right to salary when labor is made available
An employee who is absent from work is, in principle, not entitled to salary
The employer bears the operational risk for conditions that prevent the employee from performing work when labor is available
The law provides exceptions to these principles in several cases, including sickness, where the employer must pay salary during the employer's period (up to 16 days), cf. National Insurance Act § 8-19 (1).
Different Salary Systems
There are mainly two types of salary systems:
Time-based salary: The salary is determined based on the time the employee makes their labor available (hourly, daily, weekly, monthly, or yearly salary). The remuneration is independent of the work result.
Performance-/results-based salary: The salary is based on the work results, as with:
Piecework salary
Commission salary
Bonus schemes
Often, combination schemes are agreed upon, for example, a fixed minimum salary with results-based supplements. The parties are fundamentally free to agree on which salary system shall apply, but the system must be designed so that the employee is not subjected to physical or mental strain, cf. Working Environment Act § 4-1 (2).
Determination of Salary
Salary terms are fundamentally a private legal relationship between employee and employer and are regulated through:
Individual employment contract
Collective agreements
The legislation, however, imposes several limitations on contractual freedom:
Generalization of collective agreements: In certain industries, the Tariff Board has established non-negotiable "minimum conditions" for salary.
Prohibition against discrimination: The Working Environment Act and the Equality and Anti-Discrimination Act prohibit discrimination in the determination of salary.
Overtime payment: Employees who work overtime are entitled to a supplement of at least 40 percent to the regular salary.
Holiday payment: For work on May 1st and 17th, the employee is entitled to a supplement of at least 50 percent to the regular salary, unless otherwise agreed.
Payment of Salary
Timing of Payment
The parties are fundamentally free to agree on when the salary should be paid. Without an agreement, salary payment must occur at least twice a month, cf. Working Environment Act § 14-15 (1).
Method of Payment
The salary cannot be paid in cash, cf. Working Environment Act § 14-15 (2). Payment should occur via bank or institution authorized to conduct payment processing. The purpose is to ensure traceability and reduce the scope for tax evasion and other violations.
Exceptions to the prohibition against cash settlement only apply when payment via bank is "impossible", "very burdensome", or will be "very burdensome" for the employer and employee to settle in this manner.
Salary Deductions and Holiday Pay
The main rule in Working Environment Act § 14-15 (2) is that there is a prohibition against salary and holiday pay deductions. This is an exception to the principle of enforced set-off, and the purpose is to ensure that the employee receives salary paid as fully as possible and that the salary is predictable.
The prohibition against deductions applies to compensation that the employee is entitled to as part of their salary, but not other compensations like reimbursement of travel expenses.
Exceptions to the Deduction Prohibition
Working Environment Act § 14-15 (2) letters a-f sets out an exhaustive list of cases in which deductions in salary and holiday pay can still be made:
a) Legally mandated deduction: For example, advance deduction for tax.
b) Employee contribution to occupational pension scheme: Deduction for the employee's contribution to mandatory occupational pension schemes.
c) Written agreement: Deduction agreed upon in advance in writing. The Supreme Court has in HR-2021-2532-A (Eltel) clarified that the agreement must specify the actual salary deduction so that the employee retains predictability for their salary payments.
d) Collective agreement: Deduction for union dues, collective insurance, educational and development fund, or low wage fund when this is specified in the collective agreement.
e) Liability for damages to the employer: Deductions can be made when:
Damage is caused to the business in connection with work
The employee has acted intentionally or with gross negligence
The employee acknowledges responsibility in writing, the responsibility is established by judgment, or the employee unlawfully resigns from their position
f) Work stoppages or lockouts: Deduction due to absence caused by strike or lockout.
For deductions according to letters c, e, and f, a crucial limitation applies: The deduction must not encompass the part of the salary that the employee reasonably needs to support themselves and their family.
Statute of Limitations on Salary Claims
Claims for salary expire according to the Limitation Act, with a general limitation period of three years. The period is counted from the day the salary claim becomes due. In HR-2019-1914-A (Relief Worker III), the Supreme Court clarified that for salary claims not related to collective disputes, the Limitation Act's rules apply fully.
State Salary Guarantee in Bankruptcy
The salary guarantee scheme covers, subject to certain conditions and within certain limits, outstanding claims for salary and holiday pay in the event of employer insolvency, cf. Wage Guarantee Act § 1. The guarantee is limited to salary claims with priority in the bankruptcy estate, and for each employee, a limit of twice the basic amount of the national insurance (2G) applies.
Summary
The salary rules in Norwegian labor law balance the regard for contractual freedom with the need for worker protection. Although the parties are fundamentally free to agree on salary and salary systems, the legislation sets clear boundaries for how the salary should be paid and when deductions can be made. The prohibition against salary deductions, which ensures predictability for the employee, and the exhaustive list of exceptions where deductions can still be made, are particularly important.
