Many employers believe they have the right to deduct wages as compensation when an employee, whether deliberately or accidentally, damages the employer’s property.

The Fair Work Act prohibits an employer from deducting a sum from an employee’s wages for the benefit of the employer. This would include deducting the cost of repair of a company motor vehicle or the cost of breakages.

Other common examples of deductions from an employee’s wages by an employer that could breach the Fair Work Act include:

  • cost of damages to an employer’s assets

  • cost of breakages or accidents by employees

  • deductions to cover shortages from cash tills or cash floats

  • cost of training courses provided to an employee where the employee is directed to attend by the employer

  • cost of a mobile telephone provided to the employee for work-related use

  • cost of tools and equipment supplied to an employee

 

What do modern awards say?

Some modern awards specifically provide that an employer cannot deduct any sum from the wages of an employee where an employee damages an employer’s property. For example, clause 31 of the Restaurant Industry Award 2020 states that an employer must not deduct any sum from the wages or income of an employee in respect of breakages or cashiering shortfalls except in the case of wilful misconduct.

 

Are there any exceptions to deductions?

Under the Fair Work Act 2009, employers are subject to strict rules regarding when they can lawfully deduct money from an employee’s pay. Breaching these rules can result in civil penalties.

Section 323 of the Act mandates that employees must be paid in full for work performed. However, Section 324 outlines specific exceptions where deductions are permitted. These include situations where:

  • The employee has provided written authorisation, and the deduction is primarily for their benefit (e.g. salary sacrifice arrangements);

  • The deduction is permitted under an enterprise agreement;

  • The deduction is authorised by a modern award or a Fair Work Commission order;

  • The deduction is required or authorised by Commonwealth, State or Territory law, or a court order (e.g. tax, child support, garnishee orders).

  • Any written authorisation must clearly state the amount to be deducted and can be revoked by the employee at any time.

  • Importantly, employment contracts alone cannot authorise deductions unless they fall within the categories listed in Section 324. Even if a contract includes a clause allowing deductions, it will not be valid unless it complies with the Act.

  • Additionally, Section 326 invalidates any term in a contract, award, or agreement that allows deductions that are unreasonable or primarily benefit the employer.