Can You Deduct From Employee Wages?
A question we are often asked is whether an employer can deduct amounts of money from employee wages / salaries where that employee has lost equipment or caused damage and there is a cost involved in replacement or repair.
In most cases, the replacement or repair cost would have to be borne by the employer. Deductions from an employee’s wages for that replacement or repair would be in breach of the Fair Work Act (s324).
Unless there is a statutory provision or court order allowing a deduction, an employer is generally barred from making any deduction from an employee’s wages without the employee’s specific authority.
Even when this authority is obtained, the deduction can only be made for the purpose of paying a third party and for the benefit of the employee (not the employer).
What are Lawful Deductions?
The Fair Work Act (s326) outlines circumstances where a deduction is not reasonable. Reg. 2.12 of the Fair Work Regulations 2009 provides examples of deductions that may be considered reasonable:
- The deduction is made in respect of the provision of goods or services by an employer, or partly related to an 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 provided 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), e.g. 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.
Other Lawful Deductions include:
- Taxation is a legal requirement by an employer to deduct monies from an employee’s wages to comply with federal income tax laws to deduct PAYG instalments from an employee’s wage/salary.
- Garnishees are a court order requiring an employer to withhold part of the wages owed to an employee (the debtor) and instead pay the garnishee amount to that employee’s creditor or the court in satisfaction of a debt. All states and the Commonwealth have laws that relate to garnishee orders, and there are usually limits on how much of an employee’s wage can be garnisheed. Garnishee orders are also issued by the Family Court and Australian Tax Office.
- Child support is where an employer is ordered to deduct money from an employee’s wages or salary for child support. This deductions can be made from salary or wages, commissions, bonuses or allowances, certain assessable retirement or termination payments, payments for labour under some contracts and other remuneration (e.g. director’s fees and subcontractor payments).
- Commonwealth government payments where the Commonwealth issues a notice to an employer to garnishee an employee’s wages under the Social Security Act (e.g. Centrelink payments or social security payments where there has been a failure to make payment in accordance with a debt repayment arrangement).
- Salary sacrifice is where an employer and an employee agree to a salary sacrifice arrangement (SSA) provided that one of the following conditions is satisfied and the arrangement does not involve a contravention of sections 325 or 326:
- The deduction is authorised in writing by the employee and is principally for the employee’s benefit
- The deduction is authorised by the employee in accordance with an enterprise agreement
- The deduction is authorised by or under a modern award or a Fair Work Commission order, or
- The deduction is authorised by or under a law of the Commonwealth, a state, a territory, or an order of a court.
To recap, an employer is barred from making any deduction from an employee’s wages without the employee’s specific authority. Even when this authority is obtained, such deduction can only be made for the purpose of paying a third party.
The Next Step
If your business does not have an employee deduction authority agreement in place, contact Akyra before making any deductions to ensure your business is complying with legislation.
Akyra’s Key Takeaways
- Employers cannot deduct money from employee salaries or wages for replacing lost equipment or covering damages without proper authorisation, as outlined by the Fair Work Act. Unauthorised deductions would violate the act.
- The Fair Work Act specifies situations where deductions are considered unreasonable. There are examples of deductions that could be seen as reasonable, including deductions related to regular business services, health insurance fees, loan repayments, and costs resulting from an employee’s personal use of company property.
- There are several types of lawful deductions, including mandatory taxation, court-ordered garnishees for debt repayment, child support deductions, and authorised deductions related to government payments or salary sacrifice agreements. Each deduction type comes with specific conditions that need to be met for compliance.
NEED HELP PUTTING TOGETHER AN EMPLOYEE DEDUCTION AUTHORITY AGREEMENT?
At Akyra, we’re here to assist you in navigating through complex agreements. From keeping you updated with relevant industrial laws to setting up compliant payment processes, we can help. Stay on top of pay scales and alleviate employee concerns by reaching Akyra at 07 3204 8830. Alternatively, you can schedule a free 30-minute consultation for personalised advice. Let Akyra solve your payment concerns, and ensure they never happen again.
Disclaimer – Reliance on Content
The material distributed is general information only. The information supplied is not intended to be legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.
