My employee has been overpaid. Is it lawful for me to deduct the corresponding amount from their next pay?
Unfortunately, the answer is that such a deduction will not necessarily be lawful.
The permitted deduction provisions of the Fair Work Act are extremely restrictive. The relevant sections of the legislation are complex and tailored advice would be required in all circumstances.
However, one may start by saying that it may be unlawful to complete any deductions from an employee’s pay if the deduction is not principally for their benefit and the employee does not authorise it in writing (except where the deduction is authorised by the employee in accordance with an enterprise agreement or the deduction is authorised by or under a modern award, by or under an Fair Work Commission order or by or under a law of the Commonwealth, a State or Territory or a court order).
A deduction from an employee’s salary to repay a debt may not be principally for an employee’s benefit so it may not be lawful for an employer to complete such a deduction.
Naturally, an employer who is owed money is entitled to recoup that money. The issue is that the employer may be unable to deduct that money from employee wages. Instead, most employers will establish repayment plans with employees whereby employees will pay the owed amount back to the employer.
Such repayment plans normally take place over a reasonable period of time. Employers can also take debt enforcement proceedings against current or former employees who refuse to repay debts.
Issues in regards to permitted deductions have come up in a number of recent cases.
One such example is the decision of Fair Work Ombudsman v Glasshouse Mountains Tavern. In this case, an employee owed their employer money in regards to a gaming nominee licensee fee. The employer deducted money on termination from the employee’s termination pay for amounts including the repayment of the fee.
The employer relied on contractual provisions within the employment contract in this regard. However, the Federal Circuit Court would not accept such deductions as permitted because it was held that blanket authorisations in employment contracts cannot be used to authorise any particular deduction in the future.
Another high-profile case was that of Australian Education Union v State of Victoria (Department of Education and Early Childhood Development). This case considered the practise of the Victorian Department of Education and Early Childhood Development (DEECD) of deducting small amounts of money from the salary of certain teachers in return for providing them with laptops. Amongst other things, the Federal Court of Australia would not accept DEECD’s argument that the deductions were authorised by enterprise agreements because the deductions were held to be unreasonable in the circumstances.
For more information on this topic, please contact us or call the Ai Group Workplace Advice Line on 1300 55 66 77.
Clinton is the Publications Manager at Ai Group. He is responsible for a number of key services including Annotated Modern Awards, Workplace Relations Handbooks and the management of Ai Group’s HR and Health & Safety Resource Centres. Clinton has a Masters in Employment Relations and previously held advisory roles with the Workplace Authority and Fair Work Ombudsman.
