There are very restricted situations where it is acceptable for a business to deduct or withhold monies from a staff members pay. This important area is often not well understood and is the focus for this weeks HR Highlight.

When an employee is working they are to receive payment for the time they are working. Working means work tasks as directed by the employer and includes when the employee is training, attending meetings and performance management activities.

Withholding anything from an employees pay is something that needs to be examined closely.

Any money that is not paid to the employee, that is withheld or taken out of the pay is a Deduction. There are only a handful of situations were Deductions are acceptable.

The principle that is applied to assessing Deductions is two fold;

  • Is the Deduction allowed?
  • Is the Deduction agreed to in writing and for the employees benefit?

This principle results in three types of Allowed Deductions;

  1. Allowed Deductions
  2. Allowed with Permission Deductions
  3. Allowed Employee Request and Benefit Deductions

Allowed Deductions

There are some Deductions, like PAYG tax deductions, that are allowed due to law or the employment instrument.

For example if there is a court order to withhold or redirect a portion of the employees pay (a Garnishee Order) then that Deduction is allowed. These sorts of court orders often are part of child custody and support proceedings. In such a case the Deduction should be clearly labelled as per the court order and a copy of the court order should be kept on the employees file.

Another example of an Allowed Deduction is where the Award provides for it. Some, not all, Awards include provision for deductions from wages. One such example is the Road Transport and Distribution Award 2020 – https://www.fwc.gov.au/documents/documents/modern_awards/pdf/ma000038.pdf – that includes at clause 34.1.d, provision for the deduction from wages due if the employee does not provide the required amount of notice of resignation. Even in this very particular setting the amount deducted must follow the allowance outlined in the Award “does not give the period of notice required under clause 34.1(b), then the employer may deduct from wages due to the employee under this award an amount that is no more than one week’s wages for the employee”, and it must be clearly labelled on the payslip.

Where there is a law, court order or an Award provision that is being complied with the Deduction is Allowed as long as the deduction is clearly labelled on the payslip and any required evidence or conditions are met.

Allowed with Permission Deductions

There are other Deductions that are allowed, but they have to come with the express permission (written permission) of the employee.

For example if the employee is engaged under a Registered Enterprise Agreement that includes a term that allows for a Deduction, the employee must agree to the Deduction in order for the deduction to be made appropriately. In addition to keeping a copy of the agreement on the employee file the Deduction will also need to be clearly labelled on the payslip.

Practically this element is often addressed with an acknowledgement of any specific terms in the Registered Enterprise Agreement that include Deductions in the engagement or confirmation of employment documents – such as – “I acknowledge the following deductions may be made as outlined in the Agreement; clause 6 a deduction equivalent to the notice that should have, but was not, provided in clause 6 on resignation; clause 19 a deduction equivalent to the amount of the values outlined in clause 19 for any uniform items not returned on resignation or termination”.

Personal use deductions can also fall into this category. Deductions for personal items purchased on a work credit card, personal calls on a work mobile phone or personal use products purchased from the business are all allowed, as long as the business has received written permission from the employee, keeps that permission and ensures that the Deduction is clearly labelled on the payslip.

Allowed Employee Request and Benefit

Other Deductions are allowed, only if they are at the Employee Request and for the Employee Benefit – this includes things like Union Fees and Salary Sacrifice.

There is a strong test here that any request must be genuine, an employee can not be forced into a Deduction. This is backed up by the Employee Benefit test that is applied to see if the Deduction was Allowed in the event of a dispute.

Just like with Allowed Deductions, even with the employees request and benefit a Deduction is only allowed if it is clearly labelled on the pay slip and the evidence of the request is kept on the employee file.

Allowed Deduction Recap

So it is ok to make a Deduction from an employees wages if;

  • It is part of a court order, it is labelled clearly on the payslip and a copy of the court order is kept on the file
  • It is allowed for in a law or Award and it is clearly labelled on the payslip
  • It is something that is agreed to in writing by the employee, is principally for the employees benefit, clearly on the payslip and a copy of the request for Deduction is kept on the file

It is important to note, Minors (persons under 18y) must have parental permission for deductions to be lawful – so for minors the employee and the parent written request/permission must be kept.

Unlawful Deductions

It is unlawful to deduct from an employees wages;

  • Because there is a shortage on the employees point of sale or till
  • Because a customer stole product, service or equipment
  • Because product is wasted (waste food for example)
  • Because an employee stole cash or product from the business

Learnings for Businesses

“An employee is entitled to their pay, all of their pay, and if the business is going to deduct anything it needs to be clearly labelled on the payslip and it needs to be something that the employee knew about before they did the work and agreed to. All employees agree to tax being taken out, and some agree to things like union fees or salary sacrifice amounts being taken out. There are other deductions that are allowable, but they need to be reasonable, agreed in writing and labelled on the payslip” explains ACAPMAs Elisha Radwanowski.

“It is never, not ever, ok to deduct till short falls, customer theft, drive off or waste products from an employees pay, even if the employee agrees to it. That is an unlawful deduction. If an employee does not follow the businesses instructions and there is a shortfall in the till the business can performance manage the employee for poor performance. Similarly if there is a drive off on the forecourt and the employee did not follow instructions the business can performance manage the employee for failure to follow lawful instructions, but under no circumstances is it lawful for the business to deduct such losses from the employees pay” outlines Elisha.

“Businesses have the right to performance manage for failure to follow instructions, and in some cases, like employee theft, have the right to seek the police to press charges, but even when there is employee fault, including theft, it is illegal to deduct such losses from employees wages” adds Elisha.

“ACAPMA is often asked about staff purchases and IOU systems, this is an area that needs careful consideration, planning and processes to ensure that any deductions are lawful. A system that ensures the employees are writing down their purchases and specifically requesting for that to be deducted from the next pay is a minimum. We see some sites have staff ring up IOU purchases with their unique IOU code and that data is used to do the deduction from payroll. That is fine, as long as the employee is specifically requesting the deduction, either through a blanket acknowledgment in writing and confirmation each time the code is used, or, as is more common, by printing the IOU receipt and writing on the back ‘please deduct from next pay’” continues Elisha.

“The bottom line is this, when making a deduction the business must ensure it is lawful, reasonable, agreed in writing and clearly labelled on the payslip, otherwise they will be in breach of the law” concludes Elisha.

Here to Help

ACAPMA Employment Department professionals are available to assist members with this and other employment matters via employment@acapma.com.au

HR Highlights are things to consider, implement and watch out for in your business. They are provided as general advice, Members are reminded that they can seek further advice on their situation by emailing employment@acapma.com.au its free for members. ACAPMA membership is affordable at only $810 per year for a single site and valuable with sites gaining HR advice support and representation as well as a raft of other benefits and discounts. Click here to learn more about ACAPMA membership.

Elisha Radwanowski BCom (HRM & IR)
ACAPMA

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