As an employer, you may be wondering whether it is legal to make a deduction from an employee’s wages to pay for the cost of expenses. Employees may also be interested to know whether an employer can take part of their wages to pay, for example, for upgrades to a business. This guide will explain when an employer can legally accomplish this, and what rights an employee has in the matter.
Before making any deduction to an employee’s wages, it is always best to consult an employment lawyer as to the legality of the potential deduction.
What Is a Deduction?
An employer may take money out of an employee’s wage before they pay them. This is a wage deduction. For example, a deduction may be a salary sacrifice arrangement or extra payments to an employee’s super fund. An employer can only make a deduction where:
- it’s principally for the employee’s benefit, and the employee agrees to it in writing;
- a law, court order, or the Fair Work Commission allows it;
- the employee’s award allows for it; or
- the employee’s registered agreement allows it, and the employee agrees to it.
Where the employee must agree to the arrangement, the employee’s written agreement must be genuine and not forced. The deductions must also be shown on the employee’s pay slip, time records and wages records.
When Can You Deduct Wages?
There are limited situations where a deduction that benefits an employer can be made. However, the deduction must still be reasonable and made in accordance with an award, registered agreement or contract.
Inadequate Notice of Termination
Where an employee fails to give adequate notice, an employer could be able to make a deduction from the employee’s wages. Most awards in Australia allow an employer to deduct up to a week’s wages from an employee’s pay where:
- an employee is over 18;
- under their award, the employee has not given the correct amount of notice; and
- the deduction is not unreasonable.
Employers can only deduct from wages under the award; deductions from other entitlements, such as from leave entitlements, cannot occur. Before deducting pay from an employee who doesn’t give minimum notice, employers should always check the employee’s award or consult an employment lawyer.
Business Goods and Services Deductions
Deductions are reasonable where an employer provides goods or services to the employee as part of their ordinary business. However, the deduction is not reasonable if the employee is paying more than the general public for those goods or services. For example, an employer that is a health fund may make deductions for an employee’s health insurance fees.
Private Use of Property Deductions
An employer can reasonably make deductions to recuperate costs incurred when an employee uses the employer’s property, for some private purpose. As an example, the following are considered costs that can be reasonably deducted:
- costs incurred for personal items bought by an employee using a work credit card;
- the price of petrol for a work car, which was used for an employee’s private use; or
- the cost of personal calls on a work mobile phone.
When Are Deductions Not Allowed?
There are cases where a deduction cannot be made, whether or not it complies with an award, registered agreement or contract. An employer cannot deduct money if:
- The deduction benefits the employer and is unreasonable in the circumstances;
- the employee is less than 18 years old, and their parent or guardian does not agree to the deduction in writing.
Example
An employer might find that the cash register does not have enough money in it at the end of the day. The employer cannot deduct wages from an employee working at the registers that day. This is because it would directly benefit the employer, and would not be reasonable under the circumstances.
Conclusion
When considering whether you can deduct pay from an employee’s wages, consider the circumstances of the deduction. There are circumstances where employers can deduct wages for their businesses’ benefit, but it must be reasonable. You also need to consider the employee’s relevant employment award or agreement, and the law permitting you to do so.