Permitted Pay Deductions
The Fair Work Act 2009 (Cth) regulates the circumstances in which a deduction can be made from an employee's pay. Generally, a deduction cannot be made from an employee's wages or termination pay without:
- the specific authority of the employee; or
- a provision specified in the relevant award or agreement; or
- a condition specified in the contract of employment that allows the employer to make deductions from monies due to an employee under reasonable circumstances.
Note that deductions made with employee's consent may only be paid to the benefit of a third party, not to the employer.
This article summarises the legal position in relation to permitted pay deductions.
GENERAL
There are some obvious deductions permitted by law, including:
- income tax deductions;
- superannuation;
- salary sacrifice payments; and
- deductions authorised by employees such as insurance premiums, union dues and loan instalments.
Note that it is perfectly acceptable for an employer to deduct payment for the time not worked when an employee does not present for work at the designated starting time.
MODERN AWARD, ENTERPRISE AGREEMENT OR CONTRACT OF EMPLOYMENT
A term of a modern award, an enterprise agreement or a contract of employment has no effect to the extent that the term allows an employer to make a deduction from the employee's work-related pay, or requires the employee to make a payment to a third party, if the deduction or payment is directly or indirectly for the benefit of the employer, or a party related to the employer, and it is unreasonable in the circumstances.
If the employee is under 18 years of age, the deduction or payment must be agreed to in writing by a parent or guardian of the employee.
Examples of permitted deductions are:
- the cost of items purchased on a corporate credit card for personal use by the employee.
- the cost of personal calls on a company mobile phone.
- the cost of petrol purchased for the private use of a company vehicle by the employee.
Note that the relevant modern award, enterprise agreement or contract of employment must contain a term that allows for the deduction.
WRITTEN PAY DEDUCTION AUTHORISATION
In the absence of a term contained in a modern award, an enterprise agreement or a contract of employment, an employer may still make a deduction from an employee's pay, provided that the deduction is authorised in writing by the employee and is principally for the employee's benefit.
The authorisation must specify the amount of the deduction and may be withdrawn in writing by the employee at any time. Any variation in the amount of the deduction also must be authorised in writing by the employee.
LEGAL ACTION
Where an employee owes an employer a sum of money, and the employer is not permitted to deduct such an amount from the employee's pay under the law, the employer will still be able to take legal action against the employee to recover such an amount in a court of law.
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