Deduct Money from an Employee’s Wages – When is it OK?

Blog Post Employee Wage deductions

Deduct Money from an Employee’s Wages – When is it OK?

There are only a few situations where you can lawfully deduct money from an employee’s wages. Make sure you check what’s allowed before deducting so that it’s following the Fair Work Act.

Even if the employee agrees, it’s important to ensure you’re doing the right thing because unlawful deductions can result in heavy Fair Work penalties later.

When can you Deduct Money from an Employee’s Wages?

You can only deduct wages in limited situations such as;

  • If the employee agrees in writing,
  • The deduction is mainly for their benefit, for example, salary sacrifice,
  • If the deduction is allowed by law, court order, the Fair Work Commission, or the employee’s modern award,
  • It’s allowed under a registered agreement and the employee agrees.

Employers must show deductions on the employee’s payslip.

Deductions that are Not Permitted

You can’t deduct money from wages without the employee’s permission, except in limited situations; for example, an employee fails to give the required termination notice period, and a deduction is allowed in their award.

Examples of common deductions that are not necessarily allowable are; till shortages, equipment breakages, or staff gifts.

Wages Overpayments

It happens – mistakes can be made when processing payroll, resulting in an employee being paid more than they are entitled to, either as a one-off or over an long period. Employers can’t automatically withhold pay to fix payroll mistakes.

The employee must agree to repayments, and the terms must be reasonable, not causing any hardship. If the employee doesn’t agree to repay wages paid in error, you’ll need legal advice about your options.

Check the Award and Get Advice

Before an employer makes any deductions from employees’ wages, they should always check the employee’s award or agreement and the Fair Work Ombudsman deductions advice to see if it’s allowed.

Talk to us or an employment law specialist if you’ve got an unusual situation that you need help with.