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An induction on deductions from employees’ pay


An induction on deductions

Student accommodation provider UniLodge faced reports this month that it deducted a total amount of $74,336.00 for “rent” over the period October 2011 to April 2016 from the combined salary of two of its onsite caretakers.

Student accommodation provider UniLodge faced reports this month that it deducted a total amount of $74,336.00 for “rent” over the period October 2011 to April 2016 from the combined salary of two of its onsite caretakers.

The husband and wife caretakers claimed that they were paid a total of $85,784.40 gross over the same period, despite being offered a combined annual salary, with a free phone and free accommodation. The caretakers have commenced proceedings for the underpayment of more than $700,000 in wages in the Federal Circuit Court.


Lessons for employers

Deductions from employees’ pay are only permitted in accordance with section 324 of the Fair Work Act 2009 (Cth) (FW Act).

This section provides that an employer may only make deductions from amounts payable to an employee when the deduction is permitted:

  • by the employee in writing and where the deduction is principally for the employee’s benefit (for example, a salary sacrifice arrangement);
  • by the applicable modern award;
  • by the relevant enterprise agreement;
  • under a court order; or
  • under Commonwealth or State law.

In our previous blog, Cash me outside: Employer fined nearly $533,000 in addition to back payment for cash back scheme, we highlighted the Fair Work Ombudsman’s (FWO) successful legal action against a café operator who engaged in a “cash back” scheme with employees. Such “cash back” arrangements are not permitted deductions and penalties were imposed on the Director and the Company for the contraventions.

Where a permitted deduction is made, it is important that it is reflected on the employee’s payslip and any written authorisation kept as an employee record. The written authorisation must specify the amount to be deducted and can be varied or withdrawn in writing at any time by the employee.

An employment contract, modern award or enterprise agreement may have terms regarding deductions. Section 326 of the FW Act provides that such terms will have no effect to the extent that they permit an employer to make a deduction from an employee’s pay where the deduction is:

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

An employer may still be able to make certain deductions where there is a deduction term and the deduction is reasonable. The Fair Work 2009 Regulations (FW Regulations) provide in Regulation 2.12 the circumstances in which a deduction will be reasonable, including the recovery of costs for the employee’s private use of company property.


Terms of an employment contract

Without authorisation, employers cannot deduct an amount for any inadvertent or accidental overpayments made. Written authorisation for such deductions may be included as a term in a contract of employment. As noted above, it is important that terms in an employment contract dealing with deductions are carefully drafted to ensure that only those deductions which are permitted can be made.

Importantly for employers, deductions made from an employee’s wages or salary which are not permitted under the FW Act are in contravention of the FW Act and penalties may apply.


Information provided in this blog is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this blog, or from links on this website to any external website. Where applicable, liability is limited by a scheme approved under Professional Standards Legislation.


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