Withholding Pay from Employees: When Can You Deduct Money from an Employee’s Wages?

There are only a few situations where you can lawfully deduct money from an employee’s pay. Make sure you check what’s allowed before deducting to ensure you're following the Fair Work Act 2009.

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Even if the employee agrees, it's important to ensure you're doing the right thing because unlawful deductions can result in heavy Fair Work penalties later.

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When Can an Employer Withhold Pay?

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Deductions can only be made if they meet the following conditions:

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• Employee consent: The employee provides written agreement.
• For the employee’s benefit: The deduction is to benefit the employee, such as salary sacrifice arrangements.
• Legal or regulatory requirement: The deduction is mandated by law, a court order, or a Fair Work Commission decision.
• Awards and agreements: If a modern award or an enterprise agreement permits the deduction and the employee consents.

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All permitted deductions must be clearly listed on the employee’s payslip.

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Can I Deduct Money From an Employee's Pay For Training Costs?

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Under limited circumstances, it may be reasonable to withhold pay for training costs, if the cost of training was high and the employee was fired for serious misconduct. However, it would be wise to seek professional advice under these circumstances.

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Award-Based Deductions

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Some awards allow deductions without employee consent in specific situations. For example:

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• Hospitality award: Employers may deduct wages for breakages or till shortages if the following criteria is met:
  • The employee is at least 18 years old (or has parental/guardian consent if under 18).
  • The employee acted with wilful misconduct.
  • The deduction is reasonable and proportional to the employer’s loss.
• Notice of termination deductions: Many awards permit an employer to withhold up to one week’s wages from an employee's final pay if the employee (aged 18 or over) fails to provide the required notice period. However:
  • The deduction must be fair and reasonable.
  • The employer can only deduct from unpaid wages, not from other entitlements owed like annual leave or superannuation.
  • No deduction is allowed if the employer agreed to a shorter notice period than the award stipulates.

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Keep in mind that a casual employee is not generally required to give notice unless the employment contract, enterprise agreement or modern award specifies a notice period.

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Deductions Under Registered Agreements

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If a registered agreement includes deduction provisions, the employee must still consent before the employer can make the deduction. Employers can verify agreements via the Fair Work Commission’s website.

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Employment Contract Deductions

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Employment contracts may outline deduction terms, but these must comply with Fair Work laws. Employers uncertain about contract-based deductions should seek legal advice.

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Unauthorised Deductions

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Employers generally cannot deduct from wages owed without employee consent, except where explicitly permitted under an award or agreement. While some awards allow deductions for specific cases like wilful misconduct leading to till shortages, general deductions for minor mistakes or losses without employee agreement are not allowed.

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Examples of deductions that are usually not allowed include:

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• Routine till shortages (unless misconduct applies under an award)
• Equipment damage
• Staff gifts

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Handling Wage Overpayments

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Payroll errors sometimes result in employees being overpaid. Employers cannot simply withhold wages to recover overpayments. Instead, the employee must agree to a repayment arrangement that is fair and does not cause financial hardship. If the employee refuses to repay, it's important to seek legal advice on how to proceed.

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Always Review Awards and Seek Advice

Before making any deductions, review the relevant award or agreement and consult the Fair Work Ombudsman’s guidance on deductions. If faced with an unclear situation, seeking professional advice from a lawyer, accountant or Fair Work Ombudsman is recommended.

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Need Assistance?

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If you require further guidance on wage deductions and payroll compliance, reach out to our team. Stay informed by subscribing to our monthly newsletter for the latest updates and insights.

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