Employers need to be very careful when deciding to make deductions from an employee's wages.

When can an Employer make deductions from an employee’s wages?

Problems can arise when an employer deducts monies from an employee’s wages for reasons other than an employee’s benefit, such as meeting shortfalls in cash and stocks, deducting the costs of a uniform, the costs of a mobile phone, the costs resulting from of a car accident.

In the absence of any court order, the Fair Work Act states that an employer is prohibited from making any deductions from an employee’s wages without the employee’s specific authority and even then the deduction has to principally be for the employee’s benefit.

Common examples of lawful deductions include taxation, salary sacrifice, child support payments, garnishees, payments for health insurance, payments for goods purchased on corporate credit cards and repayment of loans given to the employee to purchase company goods.

Deductions are also allowable if it is permitted by the employee’s enterprise agreement, award or employment contract, but not if the deduction or payment is:

  • directly or indirectly for the benefit of the employer, or a party related to the employer; and
  • is unreasonable in the circumstances.

For example, some awards specifically permit employers to make deductions for an employee’s voluntary contributions to a superannuation fund.

If you make unlawful deductions from an employee’s wages you could be subjected to substantial fines by the Fair Work Ombudsman. For example, corporations can face a maximum penalty of $33,000 per breach or individuals can be fined up to $6,000 per breach.

ER Strategies specialises in ensuring businesses are compliant with Australian employment law. Take a look at our services to see if there is anything that we can assist your business with.

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