The Fair Work Act and Deductions

Section 324 of the Fair Work Act 2009 only permits certain types of deductions. Those are when:

1. The deduction is authorised in writing and principally for the employee’s benefit;
2. The deduction is authorised in accordance with an enterprise agreement, modern award or Fair Work Commission order; or
3. The deduction is authorised under a law or an order of the court.

The Act goes further to state that even where authorised under an agreement or award, deductions for payments that are directly or indirectly for the employer’s benefit will have no effect.

What can you deduct?

Examples of permitted deductions under the Regulations include:

• Deductions made for goods and services i.e. the employee purchases a TV through JB Hi Fi
• Deductions made for health insurance fees
• Deductions made for loan repayments
• Deductions for recovering costs directly incurred by employer through voluntary private use of property i.e. personal phone calls on company mobile phone

Other permitted deductions include:

• Salary sacrifice arrangements
• Failure of an employee to give notice under a modern award
• Overpayment of wages

What can’t you deduct?

Some examples of deductions that are not legal under the Act include:

• Deductions to cover a short fall in a till
• Damages to assets including motor vehicles
• The costs of training courses employees are required to attend
• Mobile phones for work related use
• Tools and equipment supplied to an employee
• Costs of breakages or accidents
• The costs of an employee’s uniform
• Compensation for sub-standard work

What if your employment contracts say that you can deduct?

Most employment contracts will have provisions about deducting wages where there has been an overpayment, which is permitted.

Some employment contracts will also have provisions regarding the deduction of wages where an employee has not provided you with sufficient notice on termination. Is this legal? There is nothing preventing you from having such a provision in the contract, however, unless the deduction for notice of termination is expressly permitted under an award or enterprise agreement, it will not be permitted under the Fair Work Act.

What can an employee do if you do deduct?

Where you have deducted wages from an employee for one of the illegal reasons outlined above, the employee can make a claim to the Fair Work Ombudsman and/or the Federal Circuit Court for the wages. This could result in you having to pay back the wages and potentially a fine of up to $51,000 per breach of the Fair Work Act for a corporation.

For further information of advice on your HR matters, please contact us.