Payroll deductions are amounts withheld from an employee’s gross pay by their employer to cover various obligations. These deductions can include taxes, superannuation, salary sacrifice arrangements, and other voluntary or mandatory payments. Deductions are typically itemised on each employee’s payslip, helping ensure transparency and compliance.
Payroll deductions are an essential part of payroll processing in Australia and must be managed in accordance with the Fair Work Act 2009, National Employment Standards (NES), and Australian Taxation Office (ATO) requirements.
Payroll deductions are generally classified into two main categories:
These are required by law and must be withheld by the employer:
These are made with the written consent of the employee:
When an employer runs a pay run, the total gross pay is calculated based on hours worked, loadings, allowances, and penalties. From this amount, deductions are subtracted before issuing the net pay to the employee.
Employers must:
Failure to meet these requirements may result in penalties, audits, or legal action from the Fair Work Ombudsman or the ATO.
According to the Fair Work Act 2009, employers must not deduct money from an employee’s pay if:
For example, an employer cannot deduct for breakage of equipment unless the employee has agreed in writing and it complies with the award or agreement.
Microkeeper’s all-in-one payroll software automates and tracks deductions accurately and in real-time:
Employers can configure recurring deductions for each employee, making ongoing compliance easy and error-free.
Yes, for all voluntary deductions, written authorisation is required. For mandatory deductions, no consent is needed as they are prescribed by law.
You should notify the employee immediately and correct the error in the next pay cycle or through backpay. Keeping detailed payroll records helps manage this smoothly.
Only if the employee has agreed in writing and it is allowed under the applicable modern award or enterprise agreement.
All deductions must be clearly itemised, showing the amount and type (e.g. tax, super, union fee). This is a Fair Work requirement.
Payroll deductions are more than a technicality, they’re essential to staying compliant, transparent, and trusted as an employer. Whether it’s tax withholding or employee-elected benefits, proper deduction management ensures accurate payroll and happy employees.
With the right software and processes in place, managing deductions becomes a straightforward part of your payroll workflow. Microkeeper is here to help simplify that journey for your business.
Disclaimer: This article is general information only and does not constitute legal or financial advice. Please consult a registered tax agent, accountant, or the Fair Work Ombudsman for tailored guidance.
