An employer can only deduct money from an employee’s pay if:
- the employee agrees in writing and the deduction is principally for their benefit, or
- the employee authorised the deduction under an enterprise agreement, or
- the deduction is authorised by a modern award, a pre-modern award (federal award, NAPSA, or transitional award), or an order of the Fair Work Commission, or
- the deduction is authorised by or under a Commonwealth, State or Territory law or court order.
Even if the deduction is authorised by an enterprise agreement or award, an employer can’t usually make a deduction from someone’s pay if:
- the deduction is for the benefit of the employer or someone related to the employer and is unreasonable in the circumstances, or
- the employee is under 18 years of age and their guardian or parent hasn't authorised it in writing.
Sometimes employees accidentally get paid more than they should - eg. because of a payroll mistake.
Employers can’t deduct money from an employee’s wages to recover an overpayment - even if the employee agrees in writing. This is because the deduction isn’t principally for the employee’s benefit.
Instead, the employer should try to reach an agreement with the employee to repay the money. In this case, the employee would still get paid their wages and separately repay the money owed.
Best Practice Tip
An agreement to repay an overpayment should be in writing and include:
- the amount to be repaid
- the amount and when each payment will be made
- how repayments will be made (cash, bank transfer etc).
If an employer and employee can’t agree about repaying the overpayment, an employer should get legal advice.