Wage deductions can be risky business

Making lawful deductions from an employee’s wage may not always be as straightforward as it seems.

Employers who wish to make deductions from their employees’ wages should consider reviewing the framework that sets out how and when employers can lawfully make deductions first. Many employers are unaware of the specific circumstances that permit them to make deductions from an employee’s wage, particularly in situations when they seek to recover money they believe is owed to them.

The Fair Work Act 2009 (Cth) outlines the specific provisions regarding the circumstances of when an employer can make deductions from an employee’s pay. It is important that employers are aware of these provisions, as an unlawful deduction can result in severe civil penalties that range up to $10,200 for individuals, and up to $51,000 for businesses.

Section 323 of the Fair Work Act 2009 (Cth) requires an employer to pay their employees an amount owing to them in full in relation to their work performance. Exceptions to this obligation can be found in section 324 of the Act, which permits an employer to make deductions when:

  • the employee authorises the deduction in writing
  • the deduction is for an employee’s benefit e.g. a salary sacrifice arrangement
  • an employee authorises the deduction following an enterprise agreement
  • a modern award or a Fair Work Commission order authorises the deduction
  • the law of the Commonwealth, a State or a Territory, or an order of a court authorises the deduction

Before making a deduction, employers must obtain a written authorisation from the employee that specifies the amount of the deduction, (the authorisation can be withdrawn or varied by the employee at any time).

While it also may be common for employment contracts to include provisions that allow an employer to make deductions, it may be a good idea for employers to confirm if these provisions are indeed valid, as such terms may not comply with section 324 of the Fair Work Act 2009 (Cth).

Section 326 of the Fair Work Act 2009 (Cth) states that certain terms have no effect, however, this section only refers to a contract of employment. This reference may confuse some employers since the term ‘contract of employment’ is not referred to as an instrument from which deductions may be authorised in section 324.

Employers should be cautious when relying on general deduction wording in employment contracts. Whether or not a contract includes such contractual wording, it is the employee’s written authorisation that is required, (unless the deduction is authorised by an industrial instrument, legislation or court order).

Cristy Houghton