There are various types of deductions in payroll, some authorised by legislation and others through private agreements between an employer and employee. Legislation covers deductions like tax, garnishee orders, and superannuation, while private deductions include insurance premiums, union dues, and salary sacrifice payments such as a novated vehicle lease.
 

What payroll deductions are allowed?

The law determines what are permitted deductions and what are not. Some obvious deductions permitted by law include:

  • income tax deductions
  • money deducted pursuant to a garnishee order
  • deductions authorised by employees such as insurance premiums, union dues, and loan instalments
  • superannuation, and
  • salary sacrifice payments.


Generally, an employer is prohibited from making any deductions (except for PAYG tax) from an employee's wages or termination pay without:

  • the specific authority of the employee
  • a provision specified in the relevant award or agreement, or
  • a condition specified in the contract of employment that allows the employer to make deductions from monies due to an employee under reasonable circumstances.

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.
 

What payroll deductions are illegal?

It is illegal for some deductions to be made by the employer, such as:

  • shortfalls in cash experienced by an employee in the course of employment (unless authorised by an award)
  • fines imposed by employers on employees for breaches of company policies or practices, or for such matters as lateness to work
  • recovery of monies owing from a private loan, and
  • recovery of monies caused by damage to company property.

Such monies can only be recovered by deduction from an employee's pay by agreement with the employee. Without an agreement, an employer can only recover such monies through civil action in a local court. The retention of monies for the benefit of the employer is prohibited.


Can deductions be made for leave taken in advance?

In NSW, and under some awards and agreements, annual leave and long service leave granted in advance and then not accrued before an employee leaves the employ of the employer, can be deducted from termination pay. Check the relevant industrial instrument for more information.