When can deductions be made from an employee’s pay?

Generally, employers are prohibited from making deductions from an employee’s wages, unless certain criteria prescribed by the Fair Work Act 2009 (Cth) (FW Act) are met. Making unlawful deductions from an employee’s pay can result in significant penalties against the employer.

Recent decisions of the Federal Court of Australia (FCA) serve as an important reminder to employers of the risks involved in making deductions from employees’ pay and emphasise that all deductions must comply with legal requirements.

When can deductions be made?

Section 324 of the FW Act provides that an employer may make deductions from an amount payable to an employee if:

1. the deduction is authorised in writing by the employee and is principally for the benefit of the employee; or
2. the deduction is authorised by law, court or Fair Work Commission (FWC) order, or by an industrial instrument, such as award or enterprise agreement.

If authorised, deductions may be made from an employee’s pay, on the condition that such deductions are:

• not directly or indirectly for the employer’s benefit; and
• reasonable in the circumstances.

Recent case

In a recent case before the FCA, Fortrend Securities Pty Ltd (Fortrend) was put in the spotlight after regularly deducting amounts from an employee’s monthly wages for client entertainment and travel, amongst other contraventions.

Specifically, Fortrend unilaterally amended an employee’s pay structure, such that $500 was deducted from their monthly pay on an ongoing basis and allocated to a “client entertainment and travel account”. Under the new structure, if the employee submitted valid expenses, the money would be reimbursed; otherwise, it would be forfeited. The employee was told to “use it or lose it”.

This deduction continued for a number of years until the employee resigned in November 2022, with the total deductions amounting to nearly $47k.

Fortrend argued that it was entitled to unilaterally vary the employee’s contract of employment, as Fortrend was entitled to change its policies without prior notice. However, the FCA found this submission to be “frankly ridiculous” and that “the amount an employee is entitled to be paid under their contract is not a ‘policy’. And in any event, an employer cannot, by purporting to invoke a change in ‘policy’, unilaterally reduce an employee’s contractual entitlements”.

Ultimately, it was found that there was no evidence the employee had authorised the deductions in writing, nor could it be argued in any sense that the deductions were principally for the employee’s benefit. As such, and considering their deliberate and systematic nature, the deductions were found to constitute a serious contravention of the FW Act.

A range of repayments, interest, and penalties were ordered by the FCA in relation to Fortrend’s multiple contraventions. Relevantly, in respect of the deduction contravention, Fortrend was ordered to repay the employee $37,839.83 (inclusive of interest and excluding deductions made outside the limitation period), as well as a penalty of $133,200. The managing director of Fortrend was found to have been involved in the contravention and was ordered to pay a penalty of $2,664 to the employee.

Employer Considerations and Best Practice

This case demonstrates the risk employers face for breaches of the FW Act and reinforces that unilateral deductions from an employee’s pay are unlikely to be lawful. It is therefore prudent that employers seek advice and support prior to making deductions from wages. HR Legal can provide advice to employers regarding lawful deductions from pay.

Case reference: Wollermann v Fortrend Securities Pty Ltd [2025] FCA 103

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This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.