Payroll deductions: What can and can’t be taken out

If you’ve decided to use a payroll service to handle the wages of your employees, you still have to understand and adhere to a strict code of rules on what you can and cannot deduct from their wages should a situation arise.

Payroll outsourcing solves most employee wages problems for you, stress free, but they cannot be forced to break the law because of your lack of knowledge regarding employee mishaps or outstanding payments.

It’s useful then to know, exactly what can and can’t be taken out of an employee’s wage. So here is a comprehensive list with explanations as to why they apply.

What Can’t Be Taken Out

Regardless of the reason you find applicable, generally no deductions can be made from a paycheck that result in that employee taking home less than the national minimum wage.

This also means that you cannot take deductions out of your employees’ wages for items that are required to work there, such as:

  • Uniform required to work (unless it is in writing)
  • Specific tools or machinery required for the job
  • Transport that is required as part of the job.

Exceptions to this, as long as you have your employee sign this in writing – usually in their contract of employment:

  • Theft of company property
  • Damage to company property
  • Personal use of a company vehicle that only benefits the employee and not the company.

What Can Be Taken Out

While there are plenty of instances where pay cannot be deducted there are specific circumstances where they are allowed, and in fact are often required.

What can be taken out without exception are those required by law such as:

  • National Insurance, Income Tax, or Student Loan Repayments
  • Something agreed in the contract that your employee is liable for, such as a shortfall in the till.
  • Repayment of a loan or advancement in wages
  • Repayment of accidental overpayment charges
  • Accommodation provided by your company to your employee
  • Purchases of shares in your company

If you wish to deduct from an employee’s wages beyond that which is allowed, you are always recommended to have your employee agree to this in writing.

Special exceptions can be made, and hold up better should a lawsuit arise if the employee has agreed to it and made aware of it prior.

Do not deduct from your employee’s wage without warning for a reason not discussed.


Remember that while you may feel an employee is due a deduction from their wages for any particular reason, when it comes to the law and what you are allowed to deduct you simply might not be able to.

Most importantly, it may be worth more to your employees and the trust you’ve built with them if you make an exception to this, and instead discuss this infraction with them formally or informally.

If you’re looking for a reliable payroll service to use, that can deduct payroll and ensure your employees are paid their fair wage and on time, check out payroll service Australia for more information and great packages to fit your business needs. For more info:

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