Has your boss asked you to pay money back recently? Under certain circumstances, your boss may have every right to do so. When employers make cuts to employees’ wages, this is called making a pay deduction. Making pay deductions is only legal when:

  • It is permitted (by a Court Order, the Fair Work Commission, or by law);
  • It is in favour of the employee who willingly gives consent; or
  • It is permissible under the relevant enterprise agreement or modern award.

These deductions might come in the form of contributions to an employee’s health fund, or may be based on some salary sacrifice arrangement detailed in the employment agreement.

Prohibited Deductions

Certainly an employer cannot make pay deductions at any time and for any reason, there are limits that must be adhered to. For instance, it is not permitted to make pay deduction if:

  • It has either a direct benefit to the employer, or some beneficial flow-on effect, and is unreasonable in the context;
  • The employee is a minor under the age of 18, and no consent has been obtained from any parent or legal guardian giving permission to the pay deduction.

Cash Register/ Till Shortages

Take the example of Phil. Phil works in a coffee shop operating the cash register and is covered under the Hospitality Industry (General) Award 2010.

One night after Phil’s late night shift at the coffee shop, his employer Jessica takes over and discovers that there is $50 less in the cash register than there should be. Jessica would normally just make a pay deduction on Phil’s wages to cover the discrepancy. However, although the cash register didn’t balance, Jessica has no right to take this difference out of Phil’s wages. Phil’s award dictates that unless the pay deduction benefits Phil and is reasonable, it will be against the law. The bottom line is that the employer will need to pay the difference, however the shortage occurred.

Overpayments

When an employer overpays you, it’s almost always not on purpose. It’s more likely that the employer mistakenly thought you were owed the higher amount, or because the accountant (or whomever handles the payroll) has inadvertently made a mistake.

Once an employer works out that an overpayment has occurred, it is understandable that he or she will try to rectify the situation, however, there are limits on how this can be done. Employers can’t simply make pay deductions to cover the loss. The employer must have a conversation with the employee to work out a repayment schedule. Once the employee acknowledges the mistake and agrees to make the necessary repayments, a legally binding written agreement will need to be drawn up, detailing the following:

  • Why the employee was overpaid;
  • How much extra they were paid; and
  • How the employee can repay the amount (cash, cheque, or EFT) and how often payments are to be made (within reason, of course).

If the employer and the employee cannot come to some sort of repayment arrangement, either or both parties should get in touch with a lawyer for advice. Under awards, legislation, the registered agreement or court orders, pay deductions are permissible to account for an overpayment, but certain procedures must be followed.

Example

Jack received $4,000 more than he should have over 4 years, all because of an error in the payroll that was not his fault.

Under his award, pay deductions are not allowed to account for overpayments. Jack is contacted by his employer and asked to repay the money.  Jack agrees to repaying the money and his employer tells him that they will leave it up to him to decide how and when he will repay the money. In response Jack requests a repayment schedule of $30 per week until the $4,000 is paid back in full.

To document this agreement, Jack and his employer approach a lawyer to formalise their agreement.  This is a flexible arrangement and the fact that Jack had a say in when, and how often, the money was paid back makes the arrangement reasonable.

Conclusion

Are you looking to make pay reductions to your employees’ wages? Or are you an employee who an employer is threatening to deduct amounts from your wages?

Not sure whether or not this is legal in the circumstances? You’ve done the right thing by looking for answers. If you wish to speak with an employment lawyer about your rights as an employer with regards to making pay reductions, contact LegalVision on 1300 544 755 and we can arrange an obligation-free fixed-fee quote today.

Emma Heuston

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