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Authorised deductions from employee wages
Policies, Procedures & SafeguardsSeptember 30, 2013
As a general rule, employers should be cautious in deducting monies from employee’s wages as there are only specific circumstances where deductions are deemed lawful.
If there is no specific provision within the Fair Work Act, or other statutory provision, the employer is prohibited from making any deduction from the employees’ wages without the authority of the employee.
Fair Work Act – lawful deductions
Under the FWA there are four main types of lawful deduction:
The FWA also sets out what amounts to an unlawful deduction, even if such deductions are drafted into Modern Awards or contracts of employment.
These unlawful deductions include:
The following deductions have been found to be unlawful deductions:
Outlined below are a few examples of common occurrences regarding employee wages.
Where an employee has been overpaid it leads to a unique situation where it can be assumed that the deduction to recover the overpaid monies becomes a “reasonable deduction”. When seeking the repayment of the over payment, we would recommend advising the employee of the mistaken over payment and that an agreement is reached between the employee and the employer and that the repayment arrangement should not cause the employee financial hardship.
However, the most effective way of recovering mistaken over payments to employees would be the implementation of a workplace policy which sets out the steps to follow and the repayment schedule.
Withholding monies on termination
Under the Fair Work Act, there is provision for employers to deduct an amount from employee wages if the deduction is authorised by a modern award.
Each award is different, but as an example under the General Retail Industry Award 2010 it states that if an employee fails to give the required notice the employer may withhold from any monies due on termination an amount not exceeding the amount of notice that the employee was required to give the employer. Each award should be reviewed thoroughly as not all awards include this provision.
When seeking to withhold any monies from employees’ wages, we strongly recommend commencing a process where the employee firstly agrees to the deduction, or if that is not possible, that the deduction is deemed reasonable with regards to the amount of the deduction and the reason for the deduction and the contractual relationship between the employee and the employer.
If the deduction is deemed to be unreasonable the employer runs the risk that the employee makes a claim with the Fair Work Ombudsman for an unauthorised deduction.
If you are seeking to enter into an agreement where you wish to make deductions from your employees’ wages please give us a call on 1300 651 415 and we will be happy to assist.