At times, as an employer, you may feel justified in reclaiming money from an employee because they’ve lost company property, damaged equipment, or resigned at short notice and never returned.

But before you make a deduction from their pay, stop and remember that any deduction must be lawful and reasonable.

Under the Fair Work Act 2009, an employer can only make a deduction from an employee's pay in very limited circumstances, e.g. the deduction is required by law for tax or superannuation, ordered by a court, is for the employee’s benefit (and the person agrees), or is allowed under the employee’s award or agreement.

Even with a deductions clause in the employment contract, employers still have no right to make any deduction without a separate written agreement. Employees can’t be forced to agree to a deduction; it must be genuine.

An employee leaves without working out notice

If an employee leaves your company and doesn’t give the right amount of notice under their award, you can legally deduct up to 1 week's wages (check the award for terms). Otherwise, if a person departs early from the business, you can’t legally make deductions or withhold wages or leave unless you get their written consent.

Deductions for private use, loss, damage, or shortfalls

You can reasonably make a deduction to recover costs when an employee privately uses company’s property, e.g. makes personal calls on a work mobile.

Deductions for loss or damage by employees are more problematic, because what one person considers reasonable another might not. It’s best to have a policy or specific deductions clause that covers losses or damage to company property, but again, it's important to obtain the employee’s agreement in writing.

Overpayment

If by mistake, you overpay wages, again, you need the person’s written consent before you can deduct money from their pay. First, propose the deduction and negotiate a payment arrangement with them. If they refuse to pay the money back, seek expert advice.

In all instances, genuine consultation with the person is vital. This article has more useful advice on recovering costs from employees.

More Help

If you need more help with payroll and deductions, get in touch with us and we'll help you get it sorted.