When an employee leaves and does not return items such as a laptop, mobile phone, or uniform, employers often ask whether the cost of the missing items can be deducted from their final pay. In most cases, the answer is no. You still need to pay out what the employee is owed, and recover the missing equipment as a separate exercise.
Here’s why and what your options actually are.
The legal position on wage deductions
Section 323 of the Fair Work Act 2009 requires an employer to pay an employee all amounts owing in full in relation to the performance of work. This includes termination pay.
Deductions from wages or salary are only permitted in specific circumstances set out in section 324 of the Act:
- The deduction is authorised in writing by the employee and is principally for the employee’s benefit (for example, a salary sacrifice arrangement)
- The deduction is authorised by the employee in accordance with an enterprise agreement
- The deduction is authorised by or under a modern award or an order of the Fair Work Commission
- The deduction is authorised by or under a law of the Commonwealth, a State, or a Territory, or an order of a court – for example, income tax withholding, a deduction for child support payments administered by Services Australia, or a garnishee court order
Where an authorisation is given in writing by the employee, it must specify the amount of the deduction and may be withdrawn in writing at any time.
Why you generally can’t deduct for unreturned items
A deduction for items not returned is not principally for the employee’s benefit. That rules out the first pathway. To make this type of deduction lawfully, you would need specific authority in the applicable award or enterprise agreement.
What this looks like in practice
Some awards do include provisions allowing deductions for unreturned items. The Restaurant Industry Award 2020 [MA000119] is one example. Clause 24.3(g) of that Award provides:
An employer may require an employee on commencing employment to sign a receipt for item/s of uniform and property. This receipt must list the item/s of uniform and property and the value of them. If, when an employee ceases employment, the employee does not return the item/s of uniform and property (or any of them) in accordance with the receipt, the employer will be entitled to deduct the value as stated on the receipt from the employee’s wages.
Note that clause 24.3(h) also provides that this deduction right does not apply where the loss or damage is due to genuine wear and tear, or circumstances that are not the employee’s fault.
Not all awards contain a similar clause. You would need to check the specific award or enterprise agreement that applies to your employee before making any deduction.
What about an employment contract?
There is no provision in section 324 of the Act that allows a contract of employment to generally authorise deductions from wages or salary – unless the authorisation is in writing, is principally for the employee’s benefit, and specifies the amount of the deduction.
Even if an employment contract contains terms allowing deductions for unreturned items, those terms will generally not comply with section 324. If you rely on such a clause and the employee later disputes the deduction, you may be required to repay the amount and could also face civil penalties.
If you can’t deduct what can you do?
Your remaining option is to pursue recovery separately, outside the payroll process. Before doing so, it is worth considering:
- Is it worth the cost and time? Legal proceedings to recover the value of a uniform or a piece of equipment can quickly exceed the value of the item itself.
- How do you value the item? A uniform will have wear and tear – it may only be the second-hand value that could realistically be recovered. Equipment like a laptop or mobile phone would likely only be claimable at its depreciated value at the time of departure, not its original cost.
In practice, many employers find that a calm, direct conversation with the departing employee, or a formal letter requesting return of the items, is more effective and far less costly than legal action.
Thinking about outsourcing your payroll?
Getting final pay right, including what can and cannot be deducted, is exactly the kind of compliance detail that trips up payroll teams, particularly when the pressure is on at termination.
At Alltech, we manage payroll for 150+ businesses across Australia, including end-to-end processing of final pays and termination payments. Get in touch to find out how outsourced payroll works and whether it’s right for your business.