Permitted deductions

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.

Overpayments

Sometimes employees accidentally get paid more than they should - eg. because of a payroll mistake.

Employers can deduct money from an employee’s wages to recover an overpayment if it’s allowed by an enterprise agreement, modern award, law or court order.

Employers may also be able to deduct money from an employee’s wages to recover an overpayment if the employee:

  • has a choice about how the money is repaid
  • agrees to the deduction in writing
  • agrees on the amount and frequency of each deduction (which must be reasonable).

If an employer and employee can’t agree about repaying the overpayment, an employer should get legal advice.

Example

Tony works full-time and was overpaid $2000 over 3 years because of a payroll error. There’s nothing in his award or agreement that deals with overpayments.

Tony and his employer have a meeting to discuss the overpayment and to come up with a solution about how the money can be paid back.

His employer said Tony can choose the way the money is paid back (eg. cash, cheque or electronic transfer) and the amount and frequency of the payments. Tony tells his employer that he’d prefer if $20 was deducted from his pay each week until the $2000 is repaid. This arrangement is put in writing and signed by Tony and his employer.

As Tony had a choice on how the money was paid back and the amount and frequency of each payment was reasonable, this would be a permitted deduction.

However, if Tony’s employer didn’t pay him any wages until the $2000 had been repaid, this wouldn’t be reasonable and wouldn’t be a permitted deduction.

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Page last updated: 25 Sep 2013