Deducting from an employee's pay can be workplace "robbery"
Deducting money from an employee’s pay can be unlawful if not authorised and for the benefit of the employee.
If the day’s takings are short, an employer cannot automatically deduct that amount from an employee, whether they are at fault or not.
And the law is quite clear that you cannot deduct wages from an employee’s pay, even if an employee has damaged workplace property or incurred liability on the workplace’s behalf.
CCIQ Employer Assistance experts have considered several recent cases of deductions and overpayments and discovered some potential traps for small business owners.
Section 323 of the Fair Work Act 2009 requires an employer to pay an employee in full. However, under s 324, an employer is allowed to make deductions from an amount payable to an employee in some circumstances, including if the deduction is authorised by the employee in writing and is:
• principally for their benefit; or
• in accordance with a relevant workplace instrument or agreement.
Additionally, under s 325 of the FW Act, an employer cannot direct an employee to spend any amount of their income in relation to work if the requirement is “unreasonable in the circumstances”.
If you have overpaid a current employee and they owe you a debt, you do not have the right to deduct the debt from their contractual payments or statutory entitlements (i.e. superannuation, annual leave amounts).
However, the employee can authorise you to deduct the amount of the debt from their net salary payments. It is important to do this to ensure that you do not infringe on their statutory entitlements such as superannuation and annual leave, etc.
In order to get this authority from an employee, you will need to write to (or email) them and advise them of the following things:
• the amount of their debt;
• the reason as to why this overpayment arose; and
• their re-payment options.
You should give the employee the option of repaying the debt directly by cash, cheque or EFT or by authorising you in writing to deduct the debt from the net amount of their next salary payment.
If an employee refuses to give you their authority, you are prohibited from unilaterally deducting the amounts. Instead, you will have to institute legal proceedings against them to recover the debt.
The National Employment Standards provides the following example of an overpayment situation and how to recoup the overpaid money.
Tony was overpaid $2000 over three years because of a payroll error. His award does not allow a deduction to be made when an employee is overpaid.
Tony and his employer, Alice, meet to discuss the overpayment. Tony agrees to repay the money and they come up with a solution.
Alice says Tony can choose how the money is paid back and the amount and frequency of the payments. Tony tells Alice that he’d prefer if $20 was deducted from his pay each week until the $2000 is repaid. This arrangement is put in writing and both sign.
This repayment is reasonable because Tony had a choice about how the money was paid back, and the amount and frequency of each payment.
An employer can only deduct money for an employees pay if:
• the employee agrees in writing and it’s principally for their benefit
• it’s allowed by a law, a court order, or by the Fair Work Commission, or
• it’s allowed under the employee’s award or registered agreement.
An employer can’t deduct money if:
• it benefits the employer directly or indirectly and is unreasonable in the circumstances, or
• the employee is under 18 years of age and their parent or guardian hasn't agreed in writing.
The National Employment Standards provides the following example of a deduction that is not allowed and related to deducting money for till shortages.
Jenny works as a bar attendant in a tavern and is covered by the Hospitality Industry (General) Award 2010.
At the end of her shift her manager, Robert, counts the money for the day. He notices that the till is $20 short. Robert usually takes money out of the bar attendant’s wages to make up for the shortfall.
Even though the till is $20 short, Robert can’t deduct this money from Jenny’s wages. This is because the award does not allow it, the deduction would not benefit Jenny and it would be unreasonable in the circumstances.
This cost will need to be met by Robert as the employer.
The law is quite clear that you cannot deduct wages from an employee’s pay, even if an employee has damaged workplace property or incurred liability on the workplace’s behalf.
An employer can also take disciplinary action where an employee’s negligent action at work causes loss or damage. Any incident should be investigated first before a decision is made, with a fair process that lets the employee give their version of events.
If you have overpaid an employee because of a payroll error, the one thing you shouldn’t do is deduct money from their next pay without asking. If you do this you may be liable for a breach of the Fair Work Act. What you will need to do is discuss and agree on a repayment arrangement with the employee. If the employee agrees to repay the money, you should prepare a written agreement for repayment.
Employers are encouraged to call CCIQ’s Employer Assistance Team on 1300 791 988 or firstname.lastname@example.org for advice on overpayments and deductions.
DISCLAIMER: This document is an information source only. Despite our best efforts, CCIQ makes no statements, representations or warranties about the accuracy or completeness of the information and disclaims responsibility for all liability for all loss or damage you might incur as a result of the information being inaccurate or incomplete in any way, and for any reason. The information contained in this document is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.