Permitted deduction

Permitted deductions are specific types of deductions from an employee's wages that are legally allowed. These deductions must meet certain criteria set out in the Fair Work Act 2009. They can include things like tax withholdings, superannuation contributions, or repayments for advances or loans agreed upon by the employee. These deductions are not arbitrary and are meant to be fair and in line with legal standards.

When you can deduct from an employee's pay

Under section 324 of the Fair Work Act, you can only deduct money from wages if the employee authorises it in writing and it is principally for their benefit, if an award, agreement or court order allows it, or if a law requires it, such as PAYG tax. An authorised deduction still has no effect if it directly or indirectly benefits the employer and is unreasonable, or if the employee is under 18 and a parent or guardian has not also agreed in writing. Employees can withdraw their authority in writing. For example, deducting the cost of a broken glass from a waiter's wages without written consent is not permitted.

Read our guide to back pay, or book an HR compliance audit.