When is it OK to deduct money from an employee’s wages

Deducting Employee Wages

There are very precise provisions in the FW Act regarding the circumstances when you can make deductions from employees wages or salary.

Before you deduct any money from an employees pay you must be careful to ensure you are not involved in a contravention of the Fair Work Act.

Unlawful deductions could see you be held personally liable under section 550 of the FW Act, face prosecution and heavy penalties, even if you did not realise you were doing anything wrong at the time.

Generally, an employer can only deduct money from an employees pay if:

  • It’s allowed by law
  • It’s allowed by the employee’s award or registered agreement
  • You have received a private authorisation in writing from the employee AND it’s principally for their benefit AND considered as ‘reasonable’

Legal Deductions

  • PAYG withholding tax and court orders
  • There is often a provision in modern awards to allow a deduction if an employee fails to give the required notice of resignation required under the award or National Employment Standard (NES
  • Private deductions, principally for the employees’ benefit could include: health insurance premiums, union dues and salary sacrifice payments

Employers must make sure the written authorisation from the employee specifies the amount of the deduction. Note also that the authorisation may be withdrawn or varied, in writing by the employee at any time.

Be extra careful with junior workers as you’ll need their parent or guardian to agree with any deductions in writing.

Any deductions must be shown on the employee’s pay slip and time and wages records.

Illegal Deductions

Generally speaking, deductions that benefit the employer and are ‘unreasonable’ in the circumstances are illegal.

Important note: Employers are unable deduct money from their employee’s wages to recovery money which they believe are owed to them.


  • Cash / Till Shortages (unless authorised by the relevant award)
  • Recovery of monies due to insurance excess, broken machinery etc
  • ‘Fines’ due to lateness or breach of company policies

If an employee refuses to pay back any monies that the employer believes they owe, the employer will need to take independent action to recover amounts overpaid, for example, through a civil claim and recovery action.

That is also true in relation to overpayment of wages, unless mutually agreed in writing, including details of reason, total amount and repayment method.

Employers should make sure to train both employees and managers in all important aspects of lawful obligantions and the use of an online induction and induction checklist will help you acheive compliance in this regards.

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