Can you legally deduct amounts from an employee's wages?

Employers are often required to make deductions from an employee's wages and may be unsure as to the various payments which may legally be deducted from an employee's wages. For example, many employment awards only allow deductions for voluntary superannuation contributions. This means that unless it is provided in a court order, or authorised by your employee, you cannot deduct any amount from your employees’ wages for any other reason.

Under the Fair Work Act 2009 (Cwlth) employers are permitted to deduct amounts from their employees wages, only if the employee consents to that arrangement in writing and it is principally for the employees benefit, or if the deduction is otherwise authorised under an agreement, award or law (court order). Other stipulations are that it must be reasonable, and if the employee is under 18 years old, their guardian or parent has authorised the deduction in writing.

Allowable deductions include salary sacrifice arrangements and payments into an employee's health fund.

If you have employees with Child Support Scheme obligations, you may have to withhold a certain amount from their wages. If this is that case, you will be contacted by the Child Support Agency and receive a Notice to Deduct Maintenance Payments from an Employee’s Salary or Wages. There is a possibility of penalties being imposed if the employer does not meet their obligations under the order. Additionally, the employer cannot make a deduction of child support that leaves an employee with a net of less than the Protected Earnings Amount (PEA) http://www.csa.gov.au/employers/pea.php

Alternatively, you may have employees subject to a garnishee order. This is a court order requiring that part of the wages owed to a particular employee (the debtor) be paid instead to that employee's creditor or the court. As with Child Support Scheme deductions, there are limits on how much of an employee's wage can be deducted under this arrangement. The deductions cannot reduce your net weekly amount to less than 100% of the standard weekly benefit. An amount of $403.70 (as at April 2010) must be left out of your pay each week for you. The remainder will be given to the Judgment Creditor. An employer is required to comply with a garnishee order. Failure to comply with the court order may result in the employer having to make good the moneys payable under the garnishee order unless the employer can successfully argue mitigating circumstances.

As an employer, it is recommended to have a policy in place to ensure you are dealing with salary deductions fairly and legally. You may want to consider including in your policy that any authorisation:

• must be in writing and be principally for the benefit of the employee;
• must specify the amount of the deduction authorised;
• can be varied if done so in writing;
• can be withdrawn by you or the employee at any time, provided that it is done in writing.

If the deduction is not authorised in the above manner, then you shouldn't facilitate it, unless an enterprise agreement, modern award, a law of a State/Territory/Commonwealth or an order of a Court/Tribunal authorises it. 

Contact Annette at End2End Business Solutions on (02) 8977 4002 should you require any assistance with establishing deductions.