Sneaking deductions from an employees’ wages is tempting, we know. It feels only  fair that they should pay for goods they damaged, crockery or glasses they dropped, a till which was under at the end of the day. But most deductions are unlawful, and they can land you in a lot of trouble, like it did for two managers of a labour hire company this year.

What happened?

In this particular case, an Australian labour hire company had been deducting “administration fees” and “meal fees” from its employees, resulting in approximately $130,000 worth of unlawful deductions in the year and a half this practice was in operation.

The company had been placed into liquidation in 2015, but that didn’t mean the Fair Work Ombudsman dropped the case. Instead, they proceeded to pursue the company’s  director and HR Manager for the unlawful activity, using the personal liability provisions of the Fair Work Act to show that these individuals were “knowingly concerned” in the contraventions as they were not only aware of the deductions, but actively tried to conceal them by falsifying records. These two managers were ordered to pay $25,000 in penalties as a result.

When can I deduct from my employees’ pay?

The Fair Work Act outlines when an employer can deduct amounts from their employees’ wages or entitlements. A permitted deduction is when it is authorised:

  • in writing by the employee and is principally for the employee’s benefit (ie salary sacrificing arrangements)
  • by the employee in accordance with an enterprise agreement
  • by or under a modern award or an FWC order (for example, some awards allow you to deduct an amount equal to the period of notice an employee failed to give you upon resignation)
  • by or under a law of the Commonwealth, a State or a Territory, or an order of a court

Those categories don’t provide a lot of flexibility, and means that generally, a deduction is an unlawful act. This means that you aren’t allowed to take money out of an employee’s wages, even if it’s only to compensate you for a loss they caused, such as giving a customer the incorrect change or breaking company equipment.

What should I do?

It is important that as an employer, you are aware of your obligations in respect of deductions. If unsure, seek assistance from a HR professional to make sure that you are not putting your business, or yourself, at risk.

For more information on deductions and what this means for you, clients should contact the HR Assured team. If you’d like more information about the benefits of becoming an HR Assured client contact us today for an informal chat.