Lawful and authorised deductions¶

You cannot take money out of an employee's pay just because you want to. Fair Work sets clear rules for when a deduction is allowed. This is the key "what's allowed" lesson — get this right and the rest of deductions falls into place.

There are two main ways a deduction can be allowed: the employee has authorised it in writing and it is mainly for their benefit, or it is allowed by a law, a court order, the Fair Work Commission, or the employee's award or agreement.

In one line

A deduction is usually only allowed when the employee has authorised it in writing for their benefit, or when a law, court order, the Fair Work Commission or the award or agreement allows it.

Why this matters¶

Taking money out of someone's pay when you are not allowed to is a serious problem — the amount may have to be paid back. Small mistakes are easy to make, like docking pay for a till shortfall or a broken item. Knowing the rules up front protects both you and your employee, and saves a lot of trouble later.

What you will learn¶

When an employer may deduct from an employee's pay
The written-authorisation and benefit tests
Which deductions are not allowed

Understanding the concept¶

Fair Work explains that a deduction from an employee's pay is only allowed in certain situations.

1. The employee has authorised it in writing, mainly for their benefit. The employee gives you a written authorisation to take an amount out, and the deduction is principally for the employee's benefit — for example an extra super contribution they asked for, or union fees they want paid on their behalf. The written agreement must be genuine: the employee cannot be forced into it, and they can withdraw it in writing at any time.

2. It is allowed by a law, a court order, or the Fair Work Commission. Some deductions are required or permitted outside the employee's consent — for example a deduction a government agency or court directs you to make, such as a child support amount.

3. It is allowed by the employee's award or registered agreement. An award or a registered agreement can allow a deduction. With a registered agreement, the employee must still agree to the deduction.

Even where an instrument allows a deduction, there is an important limit: a deduction that benefits the employer (or someone connected to them) and is unreasonable in the circumstances is not allowed. Fair Work gives the example of a till being short — the employer cannot take that shortfall out of an employee's wages, because it does not benefit the employee and would be unreasonable.

For accountants & bookkeepers

The consent test and the "allowed by law / instrument" test sit on different footings. A one-off written authorisation can cover an amount that changes from year to year, but if the employee's original authorisation named a specific amount, a new written authorisation is needed to change it. Where a deduction is authorised under an award, registered agreement or contract and it benefits the employer directly or indirectly, the term has no effect to the extent it is unreasonable in the circumstances. Deductions also cannot be used to strip pay below what the employee is owed.

Example¶

Two situations, same employer. First, Jordan asks in writing for an extra amount to go into their super fund each pay — this is authorised in writing and is for Jordan's benefit, so it is allowed. Second, a customer walks out without paying and the manager wants to take the lost amount out of Jordan's next pay. That deduction would benefit the employer, Jordan did not authorise it, and it would be unreasonable — so it is not allowed, even though the till is short.

Common mistakes¶

Docking pay for a till shortfall, breakage or customer walk-out — this benefits the employer and is generally not allowed.
Relying on a verbal "yes" — an authorised deduction must be in writing.
Assuming an award or agreement lets you deduct anything — unreasonable deductions that benefit the employer still have no effect.
Changing a fixed authorised amount without getting a fresh written authorisation.

How this works in myaccountant¶

In the app — you add each allowed deduction as a deduction pay item on the employee's pay, so only the deductions you have set up are taken out. It is up to you to keep the employee's written authorisation on file where one is needed; myaccountant applies the deduction you have entered and shows it by name on the payslip.

Key points¶

A deduction is only allowed in the situations Fair Work sets out.
Written authorisation, mainly for the employee's benefit, is one way it is allowed.
A law, court order, the Fair Work Commission, or the award or agreement can also allow it.
Written authorisation must be genuine and can be withdrawn by the employee.
A deduction that benefits the employer and is unreasonable is not allowed.
If you are unsure, check with Fair Work before you deduct.

Learn next¶

General information only — not tax, super or financial advice.

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