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'I quit' – can you deduct recruitment costs from final pay?

This question was recently sent to our Workplace Advice Line.
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'I quit' – can you deduct recruitment costs from final pay?

30 September 2020

Can we deduct the cost of recruitment from an employee's pay if he resigns within the probation period?

This question was recently sent to our Workplace Advice Line.
Q Our company is negotiating an enterprise agreement and we are reviewing a number of clauses in the draft document. One of the terms in the proposed agreement relates to the company’s right to deduct recruitment costs from an employee if they resign within the first three months after commencing employment. This is to recover costs for using the services of a recruitment agency.

The bargaining representatives have questioned the legality of such a term. It was our understanding the Fair Work Act permits an agreement that contains terms that allow an employer to deduct monies from an employee’s wages. Would these terms pass the better off overall test?
A It would appear such a term in an enterprise agreement may be unlawful for two reasons. Firstly, even if an enterprise agreement contains an authority to make a deduction, the Fair Work Act (s326) provides that the authorisation will have no effect if the authorisation is to allow a deduction from an amount otherwise payable to an employee, or requires an employee to make a payment to an employer or another person.
Secondly, the Fair Work Act (s172) provides that, among other things, a matter must pertain to the relationship between an employer and that employer’s employees covered by the agreement.

In this case, it could be argued that deductions for costs incurred by the employer prior to the start of an employee’s employment is not a matter ‘pertaining to the employment relationship’. The costs pertain to the relationship between the company and the recruitment agency.
An enterprise agreement may contain terms about deductions from wages for any purpose authorised by an employee covered by the agreement. While an enterprise agreement may permit certain deductions, an individual employee must authorise the deduction and this authorisation does not arise simply from approval of the agreement.

Deduction terms will not have effect if they benefit the employer and are unreasonable in the circumstances. For example, (then) Fair Work Australia refused to allow an agreement clause that would have enabled an employer to deduct recruitment costs from employees’ pay packets if they resigned soon after commencement.

It should be noted that a matter which contravenes the Fair Work Act (s324) does not necessarily prevent approval of the agreement.

Reasonable deductions

The Fair Work Regulations 2009 (reg 2.12) provides a deduction is reasonable for the purpose of recovering costs directly incurred by an employer due to the voluntary private use of particular property of the employer by an employee (whether 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
  • the cost of petrol purchased for the private use of a company vehicle by the employee.

However, although these deductions may be considered reasonable, the deduction must still be authorised by the applicable modern award, enterprise agreement or contract of employment.

The bottom line: There are limited situations when an employer may deduct monies from an employee’s wages but, for the most part, this is not permitted.

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