The law has a strict set of conditions that must be met.
A reasonably common question from employers is whether deductions from an employee’s wages are lawful.
There are certain situations where an employer is entitled to deduct monies from an employee’s wages. Any deduction that an employer takes from an employee’s pay must be authorised:
- By legislation; or
- By a modern award or approved enterprise agreement; or
- By the employee in writing, and the deduction is principally for the employee’s benefit;
- If the employee is under 18 years old, the employee’s parent or guardian must authorise the deduction in writing for the employer to be able to lawfully withhold monies.
Deductions must be reasonable, and if the deduction directly or indirectly benefits the employer, it may well be unlawful.
Withholding notice when an employee resigns
Modern awards generally authorise an employer to withhold monies from an employee’s final pay if they resign, but do not give notice as required by the award. Most awards contain a version of this clause from the Timber Industry Award 2010:
The notice of termination required to be given by an employee is the same as that required of an employer except that there is no requirement on the employee to give additional notice based on the age of the employee concerned. If an employee fails to give the required notice the employer may withhold from any moneys due to the employee on termination under this award or the NES, an amount not exceeding the amount the employee would have been paid under this award in respect of the period of notice required by this clause less any period of notice actually given by the employee.
Example: Jarrod works in the yard, and his work is covered by the Timber Industry Award 2010. He’s worked for his employer for 2.5 years, he’s 47 years old, and his contract of employment says that either party must give four weeks’ notice of termination or resignation. Jarrod’s minimum weekly award rate of pay is $767.80 gross, but he is actually paid $950 gross per week. Jarrod resigns, but only works one week of his notice before leaving.
Because of Jarrod’s length of service and his age, the award requires 3 weeks’ notice by his employer, or 2 weeks’ notice if he resigns. As he’s resigned, but only worked out one week’s notice, he ‘owes’ his employer a week’s notice according to the award, and three weeks’ notice according to his contract.
His employer may only recover the remainder of the award notice, or one week. Jarrod’s employer can withhold $767.80 gross from his final pay, the award rate for the work he performs. The difference between this amount and his ordinary weekly wage of $950 may not be withheld without Jarrod’s express written consent.
The award allows notice to be withheld from monies owed under the award or the NES, so this money can be withheld from accrued annual leave on termination.
It is unlawful to withhold money from an employee’s pay to make up ‘till unders’. If the cash register does not balance, that is a cost that the employer must bear. It may be reasonable to take disciplinary action against the employee for incorrect cash handling, if the employer were certain that the employee was the only person who had access to the till.
When an employee owes the employer money
Sometimes an employee finishes up while they owe their employer money. They might have been overpaid, and agreed to repay the mistakenly paid monies. They may have borrowed money from the employer, and be in the process of paying it back. Or they may have a staff account with a balance owing.
If the employee owes a debt to the employer, an agreement must be in writing, and any arrangements for repayment of the money must be genuinely agreed to by both parties. The only way the employer could deduct that money lawfully is if there is a written agreement between the parties about withholding the outstanding balance on termination of employment.
Insurance excess for accidents in company vehicles
It is likely to be unlawful to require an employee to reimburse the employer for an insurance excess in the event that an employee has an ‘at fault’ accident in a company vehicle.
The employer’s options in this situation are restricted to disciplinary proceedings, up to and including dismissal. Depending on the situation, failure to take due care may be a valid reason for dismissal.
Cost of personal items paid for by the company
The company may be paying personal expenses for an employee, on the understanding that the employee will reimburse the employer, such as:
- Purchases of personal items on a corporate credit card;
- Personal phone calls on a company mobile; or
- Fuel for a company vehicle where the use is personal.
If the employer wishes to recover these private expenses from the employee, there must be a written agreement between the parties for the employer to withhold monies.
Deducting from wages or salaries is complex, and employers are advised to get specific advice before withholding monies.