Generally, without a specific statutory provision or court order, an employer is prohibited from making any deduction from an employee’s wages without the employee’s specific authority and, even then, when this authority is obtained, such deduction can only be made for the purpose of paying a third party, for the benefit of the employee.
Fair Work Act
Section 324 of the Fair Work Act provides that an employer may deduct an amount payable to an employee if:
- The deduction is authorised in writing by the employee and is principally for the employee’s benefit, or
- The deduction is authorised by the employee in accordance with an enterprise agreement, or
- The deduction is authorised by or under a modern award or FWC order, or
- The deduction is authorised by or under a law of the Commonwealth, a state or a territory, or an order of a court.
Industrial instruments/contracts of employment
Section 326 of the Fair Work Act provides that certain terms of modern awards, enterprise agreements, and contracts of employment relating to deductions have no effect, including a deduction of payment that is directly or indirectly for the employer’s benefit.
Terms that are invalid include permitting an employer to deduct an amount payable to an employee in relation to the performance of work, or requiring an employee to make a payment to an employer or other person, eg an employer deducting a ‘fee’ from an employee’s wages and forwarding the amount to a job placement agency.
Another example of an invalid term may be where an employee is deemed by the employer to have performed sub-standard workmanship, with the employer consequently deciding to dock the employee’s wages as ‘compensation’ to recover the cost to the employer of repairs.
An employer must not directly or indirectly require an employee to spend any part of an amount payable to an employee in relation to the performance of work if the requirement is unreasonable in the circumstances.
Other common examples of deductions from an employee’s wages by an employer that could breach the Fair Work Act include:
- Deductions to cover shortages from cash tills or cash floats
- Cost of training courses provided to an employee where the employee is directed to attend by the employer
- Cost of a mobile telephone provided to the employee for work-related use
- Cost of tools and equipment supplied to an employee
- Cost of damages to the employer’s assets (including motor vehicles)
- Cost of breakages or accidents by employees
- Cost of an employee’s uniform
Fair Work Act — Regulations
Section 326(2) of the Fair Work Act provides that the Regulations may prescribe circumstances in which a deduction is or is not reasonable. Reg 2.12 of the Fair Work Regulations 2009 [Cth] provides examples of deductions that may be considered reasonable, including:
- the deduction is made in respect of the provision of goods or services by an employer, or partly related to the employer, and to an employee, and the goods or services are provided in the ordinary course of the business of the employer or related party, and the goods or services are provided to members of the public on the same terms as those on which the goods or services were provide to the employee, or on terms and conditions that are not more favourable to the members of the general public
- a deduction of health insurance fees made by an employer that is a health fund
- a deduction for a loan repayment made by an employer that is a financial institution
- the deduction is for the purpose of recovering costs directly incurred by the employer as a result of the voluntary private use of particular property of the employer by an employee (whether authorised or not), eg 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 telephone.
Employers located in Victoria should note that the Victorian Workers’ Wages Protection Act 2007 [Vic] no longer applies, as it was repealed by s36 of the Fair Work (Commonwealth Powers) Act 2009 [Vic].
Modern awards — withholding monies
Section 324(1)(c) of the Fair Work Act provides that an employer may deduct an amount from an employee’s wages if the deduction is authorised by or under a modern award or an FWC order.
An important change re-introduced by modern awards is the employer’s right to withhold monies where an employee who does not give the appropriate period of notice of termination of their employment. For example, Clause 22.2 of the Manufacturing and Associated Industries and Occupations Award 2010 states that:
‘if an employee fails to give the required notice the employer may withhold from any monies due to the employee on termination under this award or the NES, an amount not exceeding the amount the employee would have been paid under this award in respect of the period of notice required by this clause less any period of notice actually given by the employee.’
A similar provision in an enterprise agreement would likewise be enforceable.
The Fair Work Ombudsman is of the view that the terms of the modern award do not contravene the National Employment Standards (s90(2)) in this circumstance, although this matter has not been the subject of judicial review.
The NES overrides any provision in a modern award or an enterprise agreement where there is an inconsistency.
Other deductions generally - The following are common examples of deductions from wages which are lawful:
It is a legal requirement for an employer to deduct monies from an employee’s wage or salary to comply with federal income tax laws to deduct PAYG instalments from an employee’s remuneration.
All states and the Commonwealth have laws that relate to garnishee orders, and there are limits on how much of an employee’s wages can be subjected to one.
Child Support Agency
Australian Government Department of Human Services issued garnishee orders.
Recovery of Commonwealth Government Payments
The Commonwealth has the power to issue a notice to an employer to garnishee an employee’s wages through s1233 of the Social Security Act 1991 [Cth]. This may occur where an employee has received excess or wrongly obtained payments from the Commonwealth, such as Centrelink payments or social security payments, and has failed to make a particular payment in accordance with an arrangement to repay the debt.
Information in HR Advice Online guides and blog posts is meant purely for educational discussion of human resources issues. It contains only general information about human resources matters and due to factors such as government legislation changes, may not be up-to-date at the time of reading. It is not legal advice and should not be treated as such.