Employers should tread carefully when it comes to deducting any amounts from an employee's wages. Generally, an employer cannot make any deduction from wages without an employee’s specific authority. Even when this authority is obtained, such deduction can only be made for the purpose of paying a third party, for the benefit of the employee.

Let's consider an example. A company is negotiating an enterprise agreement and wants to include some of its company policies in the agreement. One such policy relates to deductions from wages. The policy requires an employee to reimburse the company for any insurance excess related to a company vehicle accident.

Is this deduction permissible under the Fair Work Act (FWAct)? Would the agreement containing such a term be approved by the Fair Work Commission or does it breach the Act?

Deductions and reimbursements 

Such a term may have no effect as it could be argued it does not ‘pertain to the employment relationship’. This is because the policy relates to the employer in the capacity of the insured and is dependent on the terms of an insurance policy held by the employer, to which an employee is not a party.

Further, to require an employee to reimburse an amount for excess applied by an insurer is requiring the employee to spend part of an amount payable to the employee. These terms could contravene the FWAct (ss325 & 326) which states that an employer must not directly or indirectly require an employee to spend any part of any amount payable to an employee relating to the performance of work if the requirement is unreasonable in the circumstances.

The Fair Work Regulation (cl 2.12) stipulates deductions that are taken to be reasonable, and the deduction permitted in the proposed agreement is not for any of the purposes set out in the regulation. Consequently, the term may have no effect.

‘Unreasonable requirements to spend money’

As mentioned above, the FWAct (s325(1)) states that an employer may not directly or indirectly require an employee to spend any part of the amount payable to the employee in a particular way, if the requirement is unreasonable in the circumstances.

For example, it is likely to be unreasonable for an employer to require an employee to donate a proportion of their pay to a charitable or religious organisation nominated by the employer. It may be reasonable, however, for an employer to require an employee who is a tradesperson to purchase tools required to perform his or her duties unless the employer is required to provide those tools. Another term that may have no effect requires an employee to make a payment to the employer, such as imposing a fine on an employee for lateness.

Reasonable deductions

A deduction from wages that would be reasonable is where an employer is recovering costs directly incurred by an employee as a result of the voluntary private use of the property of the employer by the employee (were authorised or not).

Examples of such costs include:

  • the cost of items purchased on a corporate credit card for personal use by the employee
  • the cost of personal calls on a company mobile phone, and
  • the cost of petrol purchased for the private use of a company vehicle by the employee.