- The Victorian Government’s new legislation, the Victorian Workers’ Wages Protection Act 2007 (Vic) comes into force on 1 December 2008 (unless it is proclaimed prior to this date).
- The legislation requires that employees be paid in money and regulates when an employer may make deductions from wages.
- The legislation will apply to all Victorian employees and employers.
- The legislation reinforces the common law that prohibits employers from unilaterally deducting from an employee’s wages.
- The legislation stipulates circumstances where an employer cannot deduct from an employee’s wages regardless of whether they had the employee’s authorisation.
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Background
The common law in Australia prohibits an employer from unilaterally deducting from an employee’s wages.
This general prohibition is consistent with legislation which already exists in New South Wales, Queensland, South Australia, Tasmania and Western Australia that require an employer to seek authorisation from the employee before it may deduct from the employee’s wages.
Each state has slightly different rules. For example, in Queensland, deductions to offset overpaid wages must be made within one year of payment and may extend for up to six years after payment. Further, a deduction must not reduce an employee’s wages for a pay period to less than ¾ of the employee’s ordinary wage.
Prior to the enactment of the Victorian Workers’ Wages Protection Act 2007 (Vic) (Act), Victoria did not have similar laws regulating deductions from wages.
The Act will not only bring Victorian legislation in line with the other states, but will also go beyond in specifying circumstances in which even authorisation from an employee cannot make deductions from their wages lawful.
Interestingly, such legislation operates despite the fact that the Workplace Relations Act 1996 (Cth) (WR Act) now regulates virtually all aspects of the employment relationship between corporations and their employees. This is because section 16 of the WR Act expressly reserves some areas for state law including ‘deductions from wages or salaries’.
Payment in money
Under the Act, employers are required to pay employees in money, either by cash, cheque, postal or money order, or by deposit into a bank account. Payment using means other than cash, for example provision of a motor vehicle, is unlawful under the new legislation.
Deductions from wages
The Act regulates deductions from wages and it prohibits employers deducting amounts from an employee’s wages unless the deduction is made under a valid written authorisation from the employee.
The definition of ‘deduction’ is wide and expressly applies to amounts withheld in accordance with a salary sacrifice arrangement.
A deduction will also include attempts by the employer to recover amounts owed by an employee by withholding payment of wages. This might include instances where the employer has previously overpaid the employee’s wages, or where the employee owes the employer an amount for the provision of work-related clothing or equipment.
Exceptions to prohibition against deduction from wages
Under the Act, it is possible to lawfully deduct from wages where:
- the employer has written authorisation from the employee, or
- deductions are required or authorised under an industrial instrument such as an award or a certified agreement.
Where the employee has authorised the deductions, the authorisation must state the amount of each deduction, unless it is a regular deduction that is not for the benefit of the employer or a related party—for example, premiums for health insurance sent to a health fund.
The Act also imposes additional requirements where the deduction is for the benefit of the employer—for example, where the deduction is for the uniform or equipment of a new employee, or where the employer recovers a previous overpayment of wages by making a deduction into the subsequent pay cycle. In this scenario, the employer must inform the employee in writing of:
- the reason for the proposed deduction
- in whose favour the deduction is to be made
- the amount of the deduction
- whether it is a single or multiple deduction, and
- the date(s) or period when the deduction will be made.
Whilst it is as yet unclear whether such an option is valid under the Act, it may be possible for an employer to obtain a ‘pre-authorisation’ by including a general authorisation in the contract of employment to the effect that the employer may make deductions from the employee’s wages at a time and for an amount to be specified as the need arises.
Authorisation void in certain circumstances
The Act also provides that some deductions may be unlawful, despite employee authorisation. For example, if the deduction would result in the employee being paid less than the minimum wage, or if the deduction is intended to represent the cost of replacing any clothing, equipment or other property provided to the employee by the employer that was lost, damaged or destroyed unintentionally by the employee.
This provision is designed to protect employees in industries such as hospitality, whose wages were significantly reduced by deductions for accidental breakages on the job.
Employees are entitled to withdraw their authorisation at any time.
No contracting out
From 1 December 2008, it will not be possible for Victorian employers and employees to enter into a contract that is contrary to the requirements of the Act.
However, as part of the transitional arrangements, contracts made between employers and employees before 1 December 2008 that are otherwise inconsistent with the Act will have effect up until 30 June 2009.
Penalties for non compliance
Where an employer makes an unlawful deduction or fails to pay an employee in money contrary to the Act, a court may impose a penalty of up to $10,000 and order that the employer reimburse the employee. A claim may be brought by an employee, union or the minister, but only following a written demand.
Implications for employers
In order to avoid up to $10,000 in penalties, employers in Victoria should:
- review their contracts, policies and payroll practices to ensure that all deductions from wages are made in accordance with the new requirements, and
- ensure that authorisations given by an employee contains the amounts that the employee consents to having deducted from their wages.
This article was written by Rainbow Cheung, Articled Clerk and Tony Wood, Partner, Melbourne.