As an employer, it’s essential to understand the rules and regulations surrounding deductions from an employee’s pay. Failure to follow these rules may result in penalties and the need for back payment to the employee. In this blog post, we will explore the key aspects of deducting money from an employee’s pay and provide examples of reasonable deductions.

Taking money out of an employee’s pay before it’s paid to them is known as a deduction. However, employers can only deduct money if certain conditions are met. These conditions include obtaining written agreement from the employee, ensuring the deduction is primarily for the employee’s benefit, and complying with laws, court orders, Fair Work Commission orders, or the employee’s award or registered agreement.

Employees can give their employer permission to make deductions from their pay for specific amounts or varying amounts. These deductions, known as employee authorised deductions, must be mainly for the employee’s benefit. Examples of such deductions include payments to a health fund or union fees. The agreement for these deductions must be genuine and made in writing, specifying the amount, reason, date of deduction, and recipient of the deducted amount.

Awards, agreements, and employment contracts may contain terms about deductions. However, these terms may not always be effective in some circumstances. For example, some awards allow employers to deduct money without an employee’s agreement under specific conditions. It’s crucial to understand the limitations and requirements outlined in these documents to ensure compliance.

Even if deductions are allowed under an award, registered agreement, or employment contract, they may have no effect if certain conditions are not met. For instance, deductions that directly or indirectly benefit the employer and are unreasonable in the circumstances cannot be made. Additionally, if an employee is under 18 years old, their parent or guardian must agree in writing to any deductions.

Reasonable deductions include business goods and services deductions and private use of property deductions. The former refers to deductions related to goods or services provided by the employer as part of their ordinary business. For example, deducting health insurance fees when the employer operates a health fund. The latter involves recovering costs incurred from an employee’s voluntary private use of the employer’s property, such as personal purchases made with a work credit card.

Understanding the rules and regulations surrounding deductions from an employee’s pay is crucial for employers. By following these guidelines and ensuring deductions are reasonable and compliant, employers can avoid penalties and maintain a fair and transparent working environment. It’s important to refer to specific awards, agreements, or employment contracts for detailed information on when deductions can be made.

Remember to always consult legal advice for specific questions regarding employment contracts or any legal matters related to deductions from an employee’s pay.

References:

• Fair Work Act 2009 ss.324, 326
• Fair Work Regulations 2009 regs 2.12A-2.12