IR 14/13

The Superannuation Guarantee (SG) rate increased from 9.25 per cent to 9.5 per cent as at 1 July 2014 – this has prompted employers to ask whether this increase can be absorbed into an employee’s overall package. For example, can businesses offset the increase in the superannuation cost of 0.25 per cent against the employee’s salary therefore paying them 0.25 per cent less in base pay – therefore retaining an equivalent ‘salary package’ as outlined in the employee’s agreement.

The legal ability to do this can only occur where the contract of employment identifies a total salary amount that is inclusive of superannuation. If the contract outlines the total salary package as a base salary plus superannuation, then the increase in the SG contribution cannot be deducted from the employee’s salary.

What can be deducted from an employee’s salary?

The Fair Work Act imposes rules about the payment of wages and what can and cannot be deducted from wages. These following rules apply to employee entitlements including wages, salaries, commissions, bonuses, loadings, monetary allowances, penalties, payments for leave and overtime payments:

Rule 1: Payment frequency and method: employers must pay all relevant employee entitlement in full, in money by either cash, cheque, EFT or other authorised method at least monthly.

Rule 2: Authorised deductions: employers can only deduct an agreed amount from the employee if the deduction is authorised. This authority can only be through a legal instrument i.e. legislation, modern award or an enterprise agreement. For example, an employee resigns but does not give the notice required under an applicable industrial instrument. The employer is therefore allowed to deduct the amount equal to what the employee would have been normally paid for the outstanding period of notice – so if one week’s notice was required and not given, an employer can deduct one week’s salary.

Rule 3: Authorisation for reducing payment: employers can only deduct an amount from an employee’s salary if the employee authorises it in writing. The authority specifies the amount deducted must be principally for the employee’s benefit – for example salary sacrificing arrangements including higher superannuation contributions or contribution to an employee’s health fund.

Any deductions made from an employee’s salary either during employment or on termination must be authorised by an industrial instrument, legislation or the employee themselves. Failure to follow these rules can expose an employer to civil liability which may lead to legal orders or penalties issued and businesses forced to pay compensation to the employee.

Source: Workplace Bulletin, by Charles Power, 23 July 2014