When is it OK to deduct money from your employees pay?
Employers often ask us if it’s OK to deduct money which they believe the employee owes to them.
Before you deduct any money from an employees pay it is very important to understand your lawful obligations. Must employers know that, under the Fair Work Act, the full amounts owed to an employee in relation to the performance of work must be paid least monthly.
Unlawful deductions will expose you to heavy civil penalties, which range up to $10,200 for an individual and up to $51,000 for a corporation.
Generally, an employer can only deduct money from an employees pay if:
- It’s allowed by law or Fair Work
- It’s allowed by the employee’s award or registered agreement
- You have received a private authorisation in writing from the employee AND it’s principally for their benefit AND considered as ‘reasonable’
- Obvious lawful deductions include PAYG withholding tax and court orders
- There is often a provision in modern awards to allow a deduction If an employee fails to give the required notice of resignation required under the award or National Employment Standard (NES)
- Private deductions could include: health insurance premiums, union dues and salary sacrifice payments
Employers must make sure that the written authorisation from the employee specifies the amount of the deduction. Note also that the authorisation may be withdrawn or varied, in writing, by the employee at any time.
The Act does not permit an employer to take the easy option of making a deduction from the employee’s future wages or salary to recovery money which the employee owes the employer.
Payments that benefits the employer and are ‘unreasonable’ in the circumstances are illegal.
- Cash / Till Shortages (unless authorised by the relevant award)
- Recovery of monies due to Insurance Excess, broken machinery etc
- ‘Fines’ due to lateness or breach of company policies and employment contracts.
In most cases an employer are in no better position than any other creditor unless the employee agrees in writing. That is also true in relation to overpayment of wages
If an employee refuses to enter into an agreement for repayment, the employer will need to take independent action to recover amounts overpaid, for example, through a civil claim and recovery action.