Most employers are not fully aware of the circumstances entitling them to make deductions from an employee's wage particularly in situations where the employer seeks to recover money they believe is owed to them.

The Fair Work Act 2009 (Cth) (the "Act") contains specific provisions regarding circumstances of when an employer may make deductions from an employee's payment.

Unlawful deductions can expose an employer to civil penalties.

Section 323 of the Act requires an employer to pay an employee the amount owing to him/her in full in relation to work performed. The exceptions to this obligation are contained in section 324 of the Act which permits an employer to make deductions where (S.324(1)):

  1. the deduction is authorised in writing by the employee and is principally for the employee's benefit (eg a salary sacrifice arrangements); or
  2. the deduction is authorised by the employee in accordance with an enterprise agreement; or
  3. the deduction is authorised by or under a modern award or a Fair Work Commission order; or
  4. the deduction is authorised by or under a law of the Commonwealth, a State or a Territory, or an order of a court (eg income tax deductions, child support, or a garnishee Court order).

A written authorisation from an employee must specify the amount of the deduction. The authorisation may be withdrawn at any time.

There is no express provision in section 324 allowing an employment contract to generally "authorise" deductions from salary or wages, unless the authorisation falls within section 324(1).

Although it is common practice for contracts of employment to contain provisions which expressly allow an employer to make deductions, such terms may not expressly comply with section 324 of the Act. Section 326 of the Act provides that certain terms have no effect, the section provides:

  1. A term of a modern award, an enterprise agreement or a contract of employment:
    1. permits, or has the effect of permitting, an employer to deduct an amount from monies payable to an employee for work performed; or
    2. requires, or has the effect of requiring, an employee to make a payment to an employer or another person;

    3. if either of the following apply:

    1. the deduction or payment is:
      1. directly or indirectly for the benefit of the employer, or a party related to the employer; and
      2. is unreasonable in the circumstances;

Unreasonable requirements to spend an amount:

A term of a modern award, an enterprise agreement or a contract of employment has no effect if it (S.326(3)):

  1. permits, or has the effect of permitting, an employer to deduct an amount from monies payable to an employee in relation to the performance of work; or
  2. requires, or has the effect of requiring, an employee to make a payment to an employer or another person.

Section 326 refers to a contract of employment which makes the issue confusing, as the term contract of employment is not included in section 324 as an instrument from which deductions may be authorised.

In the decision of Andreas Bader v Cyclone City Cleaners Pty Ltd [2010] NTMC 044, the Court held, in reliance of section 326 of the Act, that an employer was not permitted to unilaterally withhold award wages owing to an employee against a debt the employer alleges he owed to it for damage the employee was alleged to have caused to the employer's motor vehicle.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.