Unlawful Deductions from Wages: What Every Employer Needs to Know

 A recent case involving the Mornington Shire Council is a timely reminder for all employers, especially small businesses, about the rules around deducting money from an employee’s pay.

The Queensland Industrial Relations Commission (QIRC) found that the Council made an unlawful deduction when it took $882 from an employee’s unused annual leave payout to cover relocation costs. This followed a similar finding just weeks earlier. In both cases, the employees left their roles before completing 12 months of service, and the Council tried to recover relocation costs through deductions.

Here’s where they went wrong—and what you need to know to avoid the same mistake.

What is an Unlawful Deduction?

In simple terms, an unlawful deduction is when you take money out of an employee’s pay or final entitlements without meeting legal requirements. Even if you think the employee owes your business money, there are strict rules under the Fair Work Act 2009

When Can You Make a Deduction?

According to Fair Work, you can only make deductions from an employee’s pay if:

• The employee agrees in writing and it’s mainly for their benefit (e.g. salary packaging or a staff purchase).
• It’s allowed by the employee’s award or registered agreement.
• It’s permitted by a law or a court order.
• It’s allowed by a fair employment contract (but this must not breach National Employment Standards).

You cannot deduct money simply because you’ve included a clause in the contract that says you can take it. That clause must still meet the Fair Work requirements, and you must not reduce an employee’s minimum entitlements, like annual leave, in the process.

Why the Council Got It Wrong

In this case, the council argued that the employee owed them for relocation costs because he left early, and the contract said he would need to pay it back. However, the QIRC found that this didn’t override the employee’s legal right to be paid out their full unused annual leave.

The ruling made it clear: you cannot “contract out” of legal obligations under the Queensland Employment Standards or the Fair Work Act.

The Risk for Small Business Owners

For small business owners, a simple misunderstanding like this can lead to costly legal disputes, damage to reputation, and back-pay orders. It’s not uncommon to want to recover costs when an employee leaves suddenly or breaks a service agreement, but you must go about it the right way.

Our Tip: Don’t Guess—Get HR Support

Before you take any money from an employee’s pay—whether it’s for training, uniforms, relocation, or missed notice—it’s essential to get professional advice.

At Fresh HR Insights, we help small businesses stay compliant with workplace laws and avoid unnecessary risk. We can review your contracts, provide clear advice on lawful deductions, and ensure you’re meeting your obligations under Fair Work.

Need Help Navigating Deductions?

If you’re unsure about what’s allowed or you need a hand reviewing your employment agreements, reach out to the team at Fresh HR Insights today. We’re here to keep you informed, compliant, and protected.