When an employee leaves a company and does not return items such as a laptop, mobile phone or uniform, we are often asked if the cost of the item/s can be deducted from their termination pay. Usually the answer is NO. You still need to pay the termination pay and recover the missing equipment as a separate exercise.

There are very specific requirements in the FairWork Act (2009) regarding when an employer can make deductions from an employee’s wage or salary. If you make unlawful deductions you can be exposed to civil penalties.

Section 323 of the Act requires an employer to pay an employee all amounts owing to them in full in relation to the performance of work. This includes termination pay.

Deductions may be made only if:

(1)  An authorisation for the purposes of paragraph (1)(a):

a) the deduction is authorised in writing by the employee and is principally for the employee’s benefit (e.g. a salary sacrifice arrangement)

b) the deduction is authorised by the employee in accordance with an enterprise agreement  

c) the deduction is authorised by or under a modern award or an order of the Fair Work Commission, or

d) the deduction is authorised by or under a law of the Commonwealth, a State, or a Territory, or an order of a Court (e.g. income tax deductions, a deduction made for the purposes of child support by the Department of Human Services, or a garnishee court order).

(2)  An authorisation for the purposes of paragraph (1)(a):

(a)  must specify the amount of the deduction; and

(b)  may be withdrawn in writing by the employee at any time.

A deduction for items not returned is not principally for the employee’s benefit, so you would need to have a clause in the award or enterprise agreement to allow you to make this deduction from an employee’s final pay.

As an example, here is of what the clause looks like in the Restaurant Industry Award 2010 [MA000119], for uniforms not returned:

Uniform entitlements

An employee may have to do work that requires special clothing or work that damages their clothing or footwear.

When special clothing is provided, an employer can ask their employee to sign the receipt for the purchase of the clothing. If the clothing is not returned at the end of employment, an employer may be able to deduct the value on the receipt from the employee’s final pay.

Putting a clause in the employee’s contract

There is no provision in section 324 of the Act to allow a contract of employment to generally “authorise” deductions from wages or salary, unless the authorisation is in writing, and is principally for the employee’s benefit and specifies the amount of the deduction.

As a result, even if you had terms in the employee’s contract to allow deductions from final wages for items not returned, these terms generally would not comply with section 324 of the Act.  This may mean that if you rely on such a contractual term, and the employee later disputes the deduction, you might have to repay the amount to the employee and could also be subject to a civil penalty.

Taking Legal action to recoup cost

Firstly, you would have to work out if it was worth the legal expense and time to pursue and secondly, how would you value the item? With a uniform there will be wear and tear and it may only be the second hand value of the uniform that could be recouped. With something like a laptop or mobile phone, it would probably be only the depreciated value that you could claim.