Career Advice

That 2.5% Deduction from Your Wage Might Not Be Legal

Lisa Johnson Posted by Lisa
min read
Sharon Mccutcheon  8a5e J1 Mm Q Unsplash

Things are heating up for recruitment agencies who deduct ‘administration fees’ from casual employees’ wages and payments. The Fair Work Ombudsman (FWO) conducted an audit on a labour hire company (Oz Staff Career Services) and found that the agency was making deductions from staff wages, including an ‘administration fee’ which averaged about $25 per week per employee. The agency argued that this fee was like a ‘service fee’ which gave employees access to the staff database.  

Their argument was unsuccessful and, in the end, admitted that the deductions were unlawful and contravened the Act.  A penalty hearing is scheduled later in 2016. What the FWO was successful in arguing, is that these deductions contravene s323 of the Fair Work Act.  

The relevant provisions of the Act detail what kinds of deductions can legally be deducted from employee wages. These deductions include:

  • Deductions authorised in writing by the employee and principally for the employees benefit; or

  • Deductions authorised by the employee in accordance with an enterprise agreement; or

  • Deductions authorised under a modern award or a FWC order; or

  • Deductions authorised by or under a law of the Commonwealth, State, or a Territory, or an order of the court

What does this mean? 

Unless the deduction is required by law (this includes child support deductions, court ordered deductions, taxation or other government required deductions) then it MUST be authorised by YOU and be to your benefit. How does a 2.5% deduction on your gross wage for an agency ‘administration fee’ benefit you? Well I think the agencies who do this sort of thing will argue that it gives you access to online timesheets, payroll facilities, superannuation clearing houses and self service resume updating facilities.  Perhaps they provide online resume advice or interview preparation support.  

Not that you need interview preparation support once you have got a job! I call ‘bullshit’ on this argument.  

The honest to goodness truth is that agencies HAVE to have these systems to operate and to compete in the market.  The systems are primarily for THEIR benefit in that it makes it easier for them to administer payroll and to manage recruitment processes.  We invest a great deal of money in technology, but it’s to make sure we can do what we need to faster, more accurately and with less people and resources associated with it.  That it is of any benefit to you is completely irrelevant. 

Think of it like this – if you work for someone, they are required to pay you.  

Regardless of what systems they have.  Even if they have to go to the bank and withdraw cash, they are required to pay you.  Arguing that a payroll system is of benefit to you is rubbish – it is THEIR responsibility to pay you accurately and on time. All employers have some kind of payroll system.  

I don’t see corporate employers deducting 2.5% of gross wages to pay for their payroll system. I think that agencies have got away with this because typically the casual staff / contractors affected earn a great deal more than minimum wages and FairWork is perhaps not as interested in deductions made from people who earn $1500 a week. And people who earn a decent wage are perhaps not quite as focused on recouping $37.50 deductions from gross wages. But fundamentally we now have a legal precedent that has found that administration deductions from wages is illegal.  

That’s a very good sign for all of you out there, who are unhappy with the 2.5% deduction made by your recruitment agency! It might be time for a chat!

  1. Note the bit where the law requires YOU to agree in writing to deductions that benefit you – your agency will argue that because you signed or agreed to their contract that this is effectively your tacit agreement. Whilst this is true, they still need to prove that the deduction benefits you.