It sometimes happens that an employer wishes to deduct the amount of a debt owed by an employee from wages and entitlements otherwise due to the employee. This may be as a result of an inadvertent overpayment of wages, or because an employer has made an advance on wages, or because the employee has damaged an item of company property (although employers are not generally entitled to recover the cost of such damage from an employee) or for private use of employer property.
Under the Fair Work Act, employers cannot deduct these debts from the wages or entitlements of employees without specific written consent of the employee. In particular, “debts” cannot be set off against amounts payable to an employee on termination of employment. A general authorisation contained in a contract of employment or expressed in a policy will not be sufficient. There needs to be specific written consent. Under the Fair Work Act, an employer is only allowed to make a deduction if:
- The employee has authorised the deduction in writing (specifying the amount) and the deduction is principally for the employee’s benefit;or
- The deduction is authorised by an enterprise agreement or modern award and is reasonable.
Commonly authorised deductions include income tax and superannuation. The Fair Work Regulations provide that reasonable agreed deductions can relate to the provision of goods and services by the employer to the employee and voluntary private use by an employee of employer property, eg the costs incurred by the employer through private use by the employee of a corporate credit card or mobile phone, or petrol for a vehicle provided by the employer. But these deductions need to be agreed to.
An employer may be able to sue the employee for the debt in the civil courts but employers should be cautious about making deductions without specific written authorisation by the employee given the possibility of complaint being made to the Fair Work Ombudsman and potential prosecution for breach of legislative requirements.