Deducting amounts from employees' pay

Taking money out of an employee’s pay is called a deduction.

An employer is allowed to deduct money from an employee’s pay only if:

• The employee agrees in writing and it is principally for their benefit;
• The deduction is allowed by law, a court order or the Fair Work Commission; or
• The deduction is allowed under the employee’s award or registered agreement

Money cannot be deducted from an employee’s pay if:

• The deduction benefits the employer directly or indirectly and is unreasonable in the circumstances; or
• The employee is under 18 years of age and their parent or guardian has not agreed in writing.

Employers cannot take money out of an employee’s pay to fix up an overpayment made as a result of a payroll error, unless the deduction is allowed under a registered agreement, award, legislation or court order.

Instead, the employer and employee should discuss and agree on a repayment arrangement.

If the employee agrees to repay the money, a written agreement must be made and specify:

• The reason for the overpayment;
• The amount of money overpaid;
• How repayments will be made by the employee; and
• The frequency of repayments.

If the repayment cannot be agreed on, an employer may need to seek legal advice.

For more information, click here.