What are wage deductions? This question is one our workplace relations experts get frequently via our 24/7 HR Advice Line, so if you’re uncertain about wage deductions, you can rest assured, you’re not alone.
A deduction is defined as when an employer takes an amount of money out of an employee’s pay before it’s paid to them, but what business owners must be aware of is that there are limited situations where this can happen lawfully.
Sometimes an employee’s actions can cost a business and may understandably make a business want to make a deduction from wages, yet under the stringent provisions of the Fair Work Act (Cth) 2009 (FW Act), this may not be allowed.
So, when can I deduct from my employees’ pay?
The FW Act outlines specific limited instances when an employer can legitimately deduct amounts from their employees’ wages or entitlements. These instances include:
- in writing by the employee and is principally for the employee’s benefit (i.e., salary-sacrificing arrangements) – where a deduction of this type is made, it must be made in writing specifying the particular amount of the deduction and that the agreement may be withdrawn by the employee at any time;
- by the employee in accordance with an enterprise agreement;
- by or under a modern award or a Fair Work Commission order (for example; some awards allow you to deduct an amount equal to the period of notice an employee failed to give you upon resignation); and
- by or under a law of the Commonwealth, a State or a Territory, or an order of a court.
The instances where deductions are allowed don’t allow for much flexibility meaning that mandated deductions for standard business losses are an unlawful act. This means that business owners aren’t allowed to take money out of an employee’s wages, even if it’s only to compensate the business for a loss they caused, such as giving a customer the incorrect change or breaking company equipment.
What happens if I unlawfully deduct from my employees’ pay?
There have been many instances in recent years where companies have been caught engaging in and attempting to conceal unlawful deductions. From a director and HR manager being prosecuted for their part in an illegal wage deduction scheme to businesses being placed in liquidation to recoup costs, the consequences are severe. Under the personal liability provisions of the FW Act, employers can be held individually liable because of their knowledge of and ‘knowing concern’ to the contraventions.
What does my business need to do?
It is important that as an employer, you are aware of your obligations in respect of deductions. If unsure, seek assistance from an HR professional to make sure that you are not putting your business, or yourself, at risk.
To help you with any workplace compliance questions you might have, we’d like to offer you a complimentary workplace compliance consultation for your business. Our experts will help you uncover any hidden risks before they become problems.
About our author
Daniel Ive is a Workplace Relations Advisor and assists a variety of clients via the HR Advice Line. He is currently studying for a Bachelor of Arts/Laws.