Deducting pay
An employer can deduct money from an employee’s pay in limited situations.
If the rules for deducting pay aren’t followed, there may be penalties. Employers may also need to back pay an employee.
On this page:
- Taking money out of an employee’s pay
- Employee authorised deductions
- Deductions under an award, agreement or employment contract
- Deductions under terms that have no effect
- Examples of reasonable deductions
- Tools and resources
- Related information
Taking money out of an employee’s pay
Taking money out of an employee’s pay before it’s paid to them is called a deduction.
An employer can only deduct money if:
- the employee agrees in writing and it’s mainly for the employee’s benefit
- it’s allowed by a:
- law
- court order, or
- Fair Work Commission order
- it’s allowed under the employee’s award, or
- it’s allowed under the employee’s registered agreement and the employee agrees to it.
Examples of permitted deductions include:
- salary sacrifice arrangements
- voluntary contributions into an employee’s super fund.
Employers can only take money out of an employee’s pay for overpayments in limited circumstances. See our Overpayments page for how to fix an overpayment.
Example: Deducting money for cash register shortages
Jenny works as a retail assistant in Robert’s shop and is covered by the Retail Award. She hasn’t agreed to any deductions and there isn’t anything in her award about deductions.
At the end of Jenny’s shift, Robert counts the money for the day. He notices that the register is $20 short. Robert usually takes money out of the assistant’s wages to make up for any shortfall.
Even though the register is $20 short, Robert can’t deduct this money from Jenny’s wages. This is because:
- Jenny hasn’t agreed to the deduction
- the deduction isn’t allowed by a law, court order, Fair Work Commission order or her award.
This cost will need to be met by Robert as the employer.
Employee authorised deductions
Employees can give their employer permission to make deductions from their pay that are:
- either one-off or deducted regularly
- for specific amounts or for amounts that change from time to time.
These are called employee authorised deductions and the employee needs to give their permission in writing. Examples of these deductions include payments to a health fund or union fees.
Employers can only make employee authorised deductions where the deductions are mainly for the employee’s benefit. Extra rules about when employee authorised deductions are allowed also apply if they:
- are for an amount that can change from time to time
- directly or indirectly benefit the employer (or someone related to them).
In those circumstances, the deductions are only allowed if they relate to:
- goods or services provided by the employer, or
- costs incurred through the employee’s use of their employer’s private property.
For more information, see Examples of reasonable deductions below.
An employee can make a one-off written authorisation that gives their employer permission to deduct money from their pay, even where the amount can change from year to year. It can be withdrawn by the employee in writing at any time.
An employee's written agreement to a deduction must be genuine. An employee can’t be forced to agree to a deduction.
The written agreement must include:
- for a one-off deduction, the:
- amount of the deduction
- reason for the deduction
- date the deduction will be made
- name of the person who will receive the deduction amount
- for regular deductions:
- whether the deductions are for one or more specific amounts or for amounts that could change over time
- the reason for the deductions
- if the deductions are for specific amounts, what those amounts are
- the date and frequency of the deductions
- the name of the person who will receive the deductions.
Deductions have to be recorded and kept in an employee’s records. Pay slips also have to say the:
- amount of any deduction
- name, or name and number of the fund or account the deduction was paid into.
A new written authorisation is required to change the amount of a deduction if the employee’s initial authorisation includes the specific amount of the deduction.
Example: Employee authorised deduction
Thivaan works full-time for a manufacturing company. An enterprise agreement applies to his employment.
Thivaan is a member of his union. Thivaan asks his employer, Barbara, in writing to deduct his regular fortnightly union membership contributions from his salary.
Thivaan knows the membership contributions can increase each year. In his written request, Thivaan allows Barbara to increase the deduction each year to cover the full cost of the union membership.
The company’s enterprise agreement doesn’t specifically allow deductions for union membership.
These deductions are allowed as they:
- have been authorised in writing by Thivaan
- are for Thivaan’s benefit
- don’t benefit Thivaan’s employer or someone related to them.
Deductions under an award, agreement or employment contract
Awards, agreements and employment contracts may contain terms about deductions. However, these terms don’t have any effect in some circumstances.
Awards
Some awards allow an employer to deduct money from an employee’s pay without their agreement in particular circumstances.
For example, the Hospitality Award allows employers to make a deduction for breakages or till shortages (called ‘cashiering underings’) without an employee’s agreement where the:
- employee is at least 18 years old (if they’re under 18, their parent or guardian has to agree in writing to the deduction)
- employee has acted with wilful misconduct
- deduction is reasonable and proportionate to the loss suffered by the employer.
Deducting pay when notice of termination isn’t given
Most awards say that an employer can deduct up to one week’s wages from an employee’s pay if the:
- employee is at least 18 years old
- employee hasn’t given the minimum amount of notice of termination under their award
- deduction isn’t unreasonable in the circumstances.
However, in these circumstances, employers can only deduct from wages owed under the award. The employer can’t deduct from other entitlements owed to the employee, such as accumulated leave or other over award payments. They also can’t deduct money if the employer has agreed to a notice period that’s shorter than the notice required under the award.
Check your award for more information about withholding pay when minimum notice isn’t given.
Access a copy of your award from our List of awards page. If you’re not sure of your award, use our 3-step Find my award tool.
Agreements
If a registered agreement allows for a deduction, the employee must still agree to the deduction.
Search for registered agreements on the Fair Work Commission’s website: Find a registered agreement.
Employment contracts
Employment contracts may also have terms about deductions. If you have specific questions about an employment contract, find out where to get legal advice.
Deductions under terms that have no effect
There are some limitations on deductions terms in awards, registered agreements and employment contracts.
Even if a deduction is allowed under an award, registered agreement or employment contract, the term has no effect (and can’t be used to make a deduction) if the:
- deduction benefits the employer (or someone related to them) directly or indirectly and is unreasonable in the circumstances, or
- employee is under 18 years old and their parent or guardian hasn't agreed in writing.
Whether a deduction that benefits an employer (or someone related to them) that is made under an award, registered agreement or employment contract is reasonable depends on the circumstances. A deduction for an amount that may be varied from time to time is only reasonable if it relates to:
- goods or services provided by the employer, or
- costs incurred through the employee’s use of their employer’s private property.
For more information, see Examples of reasonable deductions below.
Examples of reasonable deductions
Examples of reasonable deductions include:
Business goods and services deductions
A deduction is reasonable if an employer (or someone related to them) provides goods or services to an employee as part of the employer’s ordinary business. For example, deductions for health insurance fees made by an employer that operates a health fund.
The deduction isn’t reasonable if the:
- employee has to pay more than the general public for the goods or services, or
- goods or services are otherwise provided on less favourable terms.
Example: Reasonable business services deduction
Sarina owns and manages a gym and spa. Her employee, Nick, works as a part-time personal trainer for the gym.
Sarina offers Nick access to fortnightly spa treatments at a discounted rate. Nick agrees. Sarina offers to deduct the cost of the treatments from Nick’s fortnightly pay, which Nick agrees to.
The details of the arrangement are recorded in writing by email. This includes Nick’s agreement that:
- his pay may be deducted to cover the cost of his spa treatments
- the deductions can start from the date of his first pay period (after the agreement has been made) and will occur fortnightly as Nick accesses the spa treatments
- the deducted amounts go to his employer
- the amounts deducted will change depending on the type of treatments he has each fortnight (within a specified range).
Sarina is allowed to deduct Nick’s pay for variable amounts because they relate to services provided as part of his employer’s ordinary business at a discount.
Private use of property deductions
It’s reasonable for an employer to make a deduction to recover costs directly incurred from an employee’s voluntary private use of the employer’s property. For example, the cost of:
- personal items bought by an employee with a work credit card
- personal calls on a work mobile phone
- petrol for the private use of a work car by an employee.
Example: Reasonable deductions for private use of property
Paul is a full-time travelling salesperson working for Beth’s electronics company.
Paul is allowed to use a car owned by Beth’s company for personal and work-related use. Paul also has access to a work credit card for business expenses, which he uses to pay for petrol for the car.
Each week, Paul sends Beth details about his travel. This includes distance and time spent travelling.
The company’s enterprise agreement has rules about reasonable personal use of the vehicle and credit card. It also says that the company can deduct an employee’s pay to cover the cost of petrol for excessive personal travel if authorised by the employee.
Paul travels interstate using the car one weekend and uses the work credit card to pay for petrol. Beth tells Paul that this is considered excessive personal use of the vehicle and Paul agrees that the cost of petrol for his trip can be deducted from his pay.
The deduction is reasonable as the costs were incurred from Paul's personal use of the company's property.
Tip: Check your award, agreement and contract
Check your award, registered agreement and employment contract to find out when deductions can be made.
Source reference: Fair Work Act 2009 ss.324, 326 and Fair Work Regulations 2009 regs 2.12A-2.12
Tools and resources
- Find my award
- Record-keeping and pay slips online course
- Pay slip template
- Find an enterprise agreement – Fair Work Commission
