Sometimes employees owe employers money at the end of their employment. (That was a tricky sentence!)

This occurs for various reasons. For example: repayment for buying products, cash loan, till shortages, rent or benefits with a payment plan, over-claimed holiday or personal leave, overpaid wages, errors etc.
When the employee finishes work, you want your money to be paid back to you.The most common scenario is to deduct what the employee owes you from his/her final wages. Often referred to as a ‘deduction’.
That seems only fair.  Wrong!

Under Fair Work legislation, you may NEVER deduct ANYTHING from an employee’s wages or entitlements without following the Fair Work rules.
The only way you can deduct is if there is a written agreement in place for you to do so, it’s reasonable or it’s legislated.
No matter how hard you justify it – a prior written and signed agreement before the transaction takes place, is the only way deductions can be made. Firstly let’s clarify this in more detail.

Some employers think they can deduct till shortages from an employee. Wrong!

Till shortages do not meet any of the criteria listed below. And the award doesn’t allow it.
Missing till cash or POS errors are your problem, not the employee’s.
A lot of hospitality businesses have an expense line in the P&L called ‘Till Shortages’ to track the value and reasons for shortages.
We suggest you factor in an annual tolerance for till shortages that will work in overall operational budgets.
If you have substantial evidence that an employee is costing you excessive money in till losses,
then that employee might need more training or  is probably not suitable for the role – dismissal may be the only option. (Ensure you follow appropriate dismissal procedures).

Extract from Fair Work

An employer can only deduct money if:

  1. the employee agrees in writing and it’s principally for their benefit
  2. it’s allowed by a law, a court order, or by the Fair Work Commission, or
  3. it’s allowed under the employee’s award, or
  4. it’s allowed under the employee’s registered agreement and the employee agrees to it.

Examples include salary sacrifice arrangements or additional payments into an employee’s super fund.
An employee’s written agreement must be genuine. They can’t be forced to agree to a deduction.
Deductions have to be shown on the employee’s pay slip and time and wages records.

Just because an employee agrees in writing doesn’t mean it’s ok. The situation must still fit the above 4 criteria.

Reasonable deduction: A reasonable deduction is one that is made under an award, registered agreement or contract.
Example: deduction of pay for lieu of notice. This is usually defined as ok in an award. So a deduction is deemed reasonable.
However you can’t deduct from their other entitlements such as accumulated leave or other over-award payments.
Example: an employee has private use of a company car or takes home substantial products eg: a case of wine. It’s reasonable for an employer to make a deduction to recover costs directly incurred from an employee’s private use of the employer’s property – but do get an agreement in writing first!

Overpaying an employee in error can get tricky. It happens more often than you would think. It sometimes happens with Superannuation too.

You can’t simply underpay the employee next week. Correct action is to discuss the overpayment with the employee, agree on a repayment arrangement that is suitable to the employee.
Then get a written and signed agreement listing; why there was a payment error, how much will be repaid and when, and how will the repayments be made (eg: wages deduction, cash, bank transfer etc).
This agreement has to be seen as reasonable.

Here’s our tips to navigate or avoid this situation.

  1. Don’t allow employees to overdraw their leave entitlements. Absences are simply recorded as leave without pay (LWOP). We usually create a pay category for LWOP situations so they can be tracked.
  2. Don’t offer employees products or benefits on credit.
  3. Talk to the employee first. If you do allow employees a monetary benefit or arrangement, talk to the employee about the situation, get a written agreement before the transaction takes place that any owing funds will be deducted from the employee’s final wages or they will repay you within 7 days of leaving – whichever is instantly viable at the time or reasonably suitable to the employee.
  4. Get signed employment contracts. At the start of employment, give all employees a contract with your company policies. State in the contract that all monies owed to the company will be repaid in full as per agreements or the employee gives permission that balances will be deducted from final pay. Remember, your contract conditions can’t conflict with award or Fair Work entitlements.
  5. Get signed agreements. In addition to an employment contract, get another signed agreement from the employee each time a situation occurs. It should state that they agree to repay the money by xxxx repayments by xxx date or the balance will be deducted from their final pay. Then you can move forward with the transaction.
  6. Analyse the deduction first: does it fit the 4 criteria listed above?

Note: you can’t force an employee to agree to a deduction. If an employee is under 18 you must include the legal guardian in the process and get their sign off.
If an employee challenges you on inappropriate wages deductions, you may find yourself having to repay the employee and never seeing any reimbursement for the expenses.

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Cheers and beers!
The Restaurant Bookkeepers Team.
It’s time for a fresh start in your business, contact us now 13 000 IDEAS (1300 043 327) or jump to our contact page