By Kelly Godfrey

Employers need to be careful about making deductions from an employee’s pay. Often employment contracts will include a clause that purports to make some deductions lawful, such as where an overpayment has occurred or leave has been taken in advance. However, not all deductions are permitted by law, and unlawful deductions can result in penalties of up to $16,500 for an individual and $82,500 for a corporation.

Some examples of lawful deductions include deductions to:

• remit superannuation to an employee’s superannuation fund;
• comply with salary sacrifice arrangements; and
• remit tax from the gross payment.

Section 324 of the Fair Work Act 2009 (Cth) permits deductions where the amount of the deduction is specified and it is authorised:

• in writing by the employee and is principally for the employee’s benefit;
• within the terms of an applicable enterprise agreement;
• by or under a modern award;
• by the Fair Work Commission or court order;
• by or under legislation; and
• expressly under the contract of employment, where the deduction in the circumstances is not unreasonable, and is not directly or indirectly for the employer’s benefit (or a party related to the employer’s benefit).

Unlawful deductions from an employee’s pay may include, for example:

• those used to compensate the employer for accidental damage to a company vehicle;
• those used to balance a till that isn’t balanced at the end of the work day;
• deductions made to the wages of a child under 18 years, without the written consent of a child’s parent or guardian; and
• those used to compensate the employer for providing the employee with a laptop computer where this has not been approved by the employee.

Be careful when making deductions from an employee’s pay. If you have not obtained the employee’s consent or cannot do so under an industrial instrument, order or by legislation, seek advice. Hefty penalties can be imposed if you get it wrong.