Deductions from pay

When can I withhold money from an employee's wages or termination pay?

The Fair Work Act 2009 (the Act) regulates the payment of wages and the withholding of monies from the wages or termination payments of employees.

We begin with the position that an employer must pay an employee in relation to the performance of work in full, in money and at least monthly. Failure to do so constitutes a breach of the Act which could incur penalties for employers.

Permitted deductions

The Act only permits deductions from the wages or termination payments of employees in certain circumstances. The categories under which the Act allows deductions are as follows:

• Where the employee gives written consent to the deduction and the deduction is principally for their benefit; or
• Where the employee gives consent to the deduction in accordance with an enterprise agreement and the deduction is generally authorised by an enterprise agreement; or
• Where the deduction is authorised by a modern award or the Fair Work Commission (FWC); or
• Where the deduction is authorised by law or a court order.

Recent changes to modern awards

The FWC recently made some variations to most of the modern awards effective from the first full pay period after 1 November 2018.

One significant variation deals specifically with deductions on termination where an employee does not provide the required period of notice:

“If an employee who is at least 18 years old does not give the period of notice required under paragraph (b), then the employer may deduct from wages due to the employee under this award an amount that is no more than one week’s wages for the employee.”

The significance of this change is that now:

• employees must be over 18 years old to have any wages deducted on resignation;
• the deduction is now limited to wages only – it does not extend to other payments under the NES, such as accrued annual leave;
• the amount of wages that can be deducted is limited to one week; and
• the FWC confirmed that wages due ‘under this award’ may be deducted, over award payments cannot be deducted.

Further considerations

In addition to the rules on permitted deductions, there are other limitations as to when an employer can deduct monies from an employee.

For example, an employer must not require an employee to spend money payable to the employee in relation to the performance of work if the requirement is unreasonable in the circumstances.

Moreover, a term of a modern award, an enterprise agreement or a contract of employment that purports to permit deduction of employee monies will be of no effect to the extent that, amongst other things, the deduction or payment is directly or indirectly for the benefit of the employer and unreasonable in the circumstances.

Alternative means of recovering money

An employer may be entitled to a sum of money from an employee, even if the employer is unable to lawfully deduct that sum from an amount owing to the employee.

In such circumstances, there are other options available to employers to recoup the amounts owing to them. Such options include the negotiation of a reasonable repayment plan with the employee or debt enforcement proceedings.

Further advice

For further advice about permitted deductions, including the circumstances in which non-permitted deductions may represent greater risk to employers, please call the Workplace Advice Line on 1300 55 66 77.

This blog post was originally released on 16 April 2016. It has been updated to reflect relevant changes to modern awards.