The Department of Education claims teachers should be spending 43 hours a year covering for staff
Members of the Association of Secondary Teachers, Ireland (ASTI) could lose €2,500 from their salaries if supervision cover is withdrawn.
ASTI members say they have already lost thousands of euro in frozen increment.
Most teachers are contractually obliged to provide cover for teachers who are sick or involved in school activities such as games and field trips.
At the ASTI's annual convention last month, delegates voted to withdraw the cover from schools from September 1st as part of its dispute over issues - including lower pay scales for new entrants.
ASTI members then met with senior Department of Education officials on Wednesday, and were told that they could face losses in their salaries if they withdraw the supervision cover.
The department claims they should be spending around 43 hours a year covering for staff who are ill or busy elsewhere.
The head of the ASTI, Ed Byrne, has called the Government's threat to cut teachers' salaries 'heavy handed'.
He criticised the suggestion from the Department of Education but remains open to negotiations.
He said: "Our biggest issue has always been equal pay for equal work" before adding that "if the pay talks were to establish that, then a lot of our problems would disappear".
Speaking on Newstalk Breakfast earlier, The Irish Times' education editor Carl O'Brien said: Tthe latest development is significant" and that is has "significantly upped the ante in the dispute."
He said the Department of Education told the ASTI that they will cut the equivalent amount of 43 hours from their salaries - which equates to 5% of an average teacher's salary - if they withdraw the cover.
The union is currently the only one in the public sector which is not covered by the Landsdowne Road Agreement, which has led to major pay rows.
Carl O'Brien said there is growing discontent within the union: "There is a growing grassroots revolt from members, who are really concerned that the union is setting up a cul-de-sac and that members are losing out on pay."