Deductions from pay
Taking money out of an employee’s pay before it’s paid to them is called a deduction.
An employer can only make a deduction in limited situations (permitted deductions). If the rules for permitted deductions aren’t followed, there may be applicable penalties, and the employer may also need to back pay affected employees.
Under section 324 of the Fair Work Act 2009 a deduction is permitted only if:
- the employee agrees in writing and it’s mainly for the employee’s benefit;
- it’s allowed by a:
- law
- court order; or
- Fair Work Commission order
- it’s allowed under the employee’s award; or
- it’s allowed under the employee’s registered agreement and the employee agrees to it.
Employee authorised deductions
Employees can give their employer permission to make deductions from their pay that are:
- either one-off or deducted regularly
- for specific amounts or for amounts that change from time to time.
Examples of these deductions include payments to a health fund or union fees.
Employees need to give their permission for a deduction in writing, and the written deduction agreement must be genuine. An employee can’t be forced to agree to a deduction.
Extra rules about when employee authorised deductions are allowed also apply if they:
- are for an amount that can change from time to time
- directly or indirectly benefit the employer (or someone related to them).
In these circumstances, the deductions are only allowed if they relate to:
- goods or services provided by the employer, or
- costs incurred through the employee’s use of their employer’s private property.
Content of written deduction agreements
The written agreement must include:
- for a one-off deduction, the:
- amount of the deduction
- reason for the deduction
- date the deduction will be made
- name of the person who will receive the deduction amount.
- for regular deductions:
- whether the deductions are for one or more specific amounts or for amounts that could change over time
- the reason for the deductions
- if the deductions are for specific amounts, what those amounts are
- the date and frequency of the deductions
- the name of the person who will receive the deductions.
A new written authorisation is required to change the deducted amount if the employee’s initial authorisation includes the specific amount of the deduction.
Record keeping of deductions
Deductions have to be recorded and kept in an employee’s records. Pay slips also have to say the:
- amount of any deduction
- name, or name and number of the fund or account the deduction was paid into.
Deductions under an award, agreement or employment contract
Some awards allow an employer to deduct money from an employee’s pay without their agreement in particular circumstances. Employers should check the award(s) that apply to their employees to understand when these deductions are permitted. For example, most awards allow an employer, in particular circumstances, to deduct up to one week’s wages from an employee’s pay if the employee hasn’t given the minimum amount of notice of termination under their award.
However, these deductions can only be made from an employee’s wages. Employers can’t deduct money from entitlements such as accumulated but untaken leave on termination.
If a registered agreement allows for a deduction, the employee must still agree to the deduction.
While employment contracts may have terms about deductions, these terms may have no effect. Employers should obtain independent legal advice to ensure that these terms are lawful.
Further resources
Deducting pay - Fair Work Ombudsman
Requirements to spend or pay back money - Fair Work Ombudsman
Employment contracts - Fair Work Ombudsman
Record-keeping - Fair Work Ombudsman
