New rules for making deductions from Victorian employees' wages

The Victorian Government’s Victorian Workers’ Wages Protection Act 2007 will become operative today. This Act restricts employers' ability to make deductions from employees' wages, including to recover overpayments made to employees.

It is important to note that the Federal government's newly released Fair Work Bill 2008 (Cth) also contains provisions to regulate deductions from wages. In this respect, the Bill contains similar provisions to those in the Act. If enacted, these provisions are likely to override the Act. We will monitor progress of the Bill, including this aspect of it, closely. In the interim, Victorian employers should remain conscious of the operation of the Act.

What will change?

Previously, it was permissible to include a clause in a common law contract of employment that purported to permit any and/or all deductions from wages, or to ask employees to sign a blanket authorisation for all deductions.

Under the Act, this is no longer sufficient. Unless a deduction is authorised by an express provision in a Federal Award, a Federal workplace agreement, a court order or another law (for example, a law that requires an employer to make deductions for child support payments), an employer must now comply with the requirements of the Act before making any deduction from an employee's wages.

However, as a transitional measure, existing common law contracts or authorisations can be relied upon until 31 May 2009.

What does the Act require?

Wages must be paid in full and (except in some cases, for example where a car forms part of the employee's remuneration package) in money.

For a deduction from wages to be permitted under the Act, the employer must first obtain the employee's freely given written consent (and that of his or her parent or guardian, if the employee is under 18). The written consent may authorise one or more deductions. Deductions must cease as soon as possible after an employee withdraws his or her authorisation in writing.

If the deduction is for the direct or indirect benefit of the employer or a related party, the employer must also inform the employee of the reason for the proposed deduction; the identity of the person in whose favour the proposed deduction is to be made; the amount of the proposed deduction; and the date, dates or period during which the employer will make the proposed deduction.

A deduction for the direct or indirect benefit of the employer must also be "reasonable" within the meaning of the Act. For example, a deduction may be unreasonable if it would lead to an employee being paid below the minimum wage.

It should be noted that the Act does not compel an employer to make deductions if the employee requests this (for example, to the employee's health insurance fund), so long as the deductions are not also required to be made by law.

Penalties

Penalties of up to $10,000 apply for breaches of the Act. It should be noted that the Act prohibits victimisation of an employee who makes a complaint under the Act.

Suggested steps to achieve compliance with the legislation

• Between 1 December 2008 and 31 May 2009, review existing employment contracts, pay authorisations and applicable Federal industrial instruments.
• Where necessary and where possible, insert comprehensive provisions permitting deductions (including in relation to overpayments) in Federal workplace agreements.
• If no provision exists in an applicable Federal workplace instrument (or the provision is not comprehensive):
• Ensure that wages are paid in full and in money, except where otherwise authorised.
• Obtain freely given employee consent in writing for all deductions other than those authorised by a Federal workplace instrument or by law. If the employee is under 18, ensure that parental consent is also obtained.
• In addition, where a deduction is for the benefit of an employer or related party, ensure that the deduction is reasonable (within the meaning of the Act); and that the employee is advised of the reason for the proposed deduction, the identity of the person in whose favour the proposed deduction is to be made, the amount of the proposed deduction and the date, dates or period during which the proposed deduction will be made.
• Ensure that deductions cease as soon as practicable after employees request this.
• Take special care in the case of section 457 visa holders and public sector workers (for whom special rules apply).
• Consider amending policies on discrimination and harassment to indicate that victimisation of employees who make complaints or claims under the Act will not be tolerated.