Employee deductions: What’s allowed, what’s not

To deduct or not to deduct? When it comes to deductions from an employee’s pay, what’s allowed and what’s not? What amounts can an employer take out before it hits an employee’s hand?

In general, an employer is prohibited from making any deduction from an employee’s wages without the employee’s specific authority. Even with authority, a deduction can only be made for the purpose of paying a third party for the benefit of the employee.

The Fair Work Act 2009 provides that an employer may deduct an amount payable to an employee if:

  • the deduction is authorised in writing by the employee and it is principally for the employee’s benefit;
  • the deduction is authorised under a modern award or enterprise agreement; or
  • the deduction is authorised by a federal, state or territory law, or by an order of the court.

If the deduction is authorised in writing by the employee and is principally for the employee’s benefit, then it doesn’t have to be authorised by an award or agreement. The authorisation must also specify the amount of the deduction and may be withdrawn in writing at any time.

Unreasonable deductions

Common examples of deductions from an employee’s wages by an employer that may breach the Fair Work Act include:

  • The cost of training courses provided to an employee where they are directed to attend by the employer
  • The cost of tools and equipment supplied to the employee for work-related use
  • The cost of damage by an employee to the employer’s property (e.g. motor vehicles)
  • The cost of breakages or accidents by employees
  • The cost of employees’ uniforms
  • Fines imposed by an employer for breach of company policies or practices (e.g. for lateness)
  • Compensation as assessed by the employer for an employee misdemeanour.

While there may be an opportunity for an employer to recover certain sums of money through civil action in a local court (e.g. for damage to company property), legal advice should be sought before taking such action as the costs associated with recovery may well outweigh the return.

Permitted deductions

There are some obvious deductions that are permitted, including:

  • Income tax deductions
  • Money deducted pursuant to a garnishee order from a court
  • Deductions authorised by employees, such as insurance premiums, union dues and loan payments
  • Salary sacrifice payments.

It’s worth noting that it’s acceptable for an employer to deduct payments for the time not worked when an employee does not present for work at the designated starting time. This is in contrast to imposing a fine for lateness.

Give REEF a call

If you’re contemplating deducting an amount of money from an employee’s pay (other than those items set out above), please speak with a REEF Workplace Relations Advisor before doing so. Call 1300 616 170.