The Federal Circuit and Family Court recently delivered its decision for Fair Work Ombudsman v McCrystal Agricultural Services Pty Ltd [2025] FedCFamC2G 1478 which concerned unlawful wage deductions and serves as a timely reminder to employers to ensure that all deductions from employee wages comply strictly with the Fair Work Act 2009 (Cth) (FW Act). The decision highlights the risks of implementing policies or practices that may be well-intentioned but fall outside the statutory framework and underscores the importance of proper authorisation and ensuring deductions are for the employee’s benefit.

Background

The case involved McCrystal Agricultural Services Pty Ltd (MAS), a company operating a sweet potato farm near Bundaberg and providing labour-hire services under the Pacific Australia Labour Mobility (PALM) scheme. MAS employed 66 workers from Pacific island nations and Timor-Leste, providing worksite accommodation and health insurance. Employees were covered by the FW Act and the applicable modern award.

Between August 2021 and March 2022, MAS made three types of deductions from employee wages, as follows:

1. for breaches of an alcohol and drug policy;
2. for recouping overtime overpayments; and
3. for excess health insurance premiums.

The deductions were challenged by the Fair Work Ombudsman on the basis they were not permitted under the FW Act.

Legal principles

Under section 323(1) of the FW Act, employers must pay employees the full amount due for work performed. Deductions from wages are only lawful if permitted under section 324, which permits deductions:

• in writing and principally for the employee’s benefit;
• authorised under an enterprise agreement or modern award; or
• as required or authorised by law or a court order.

Deductions outside of these parameters, including fines or as disciplinary measures, are unlawful.

Directors and officers may also be personally liable under section 550 of the FW Act if knowingly involved in the contravention.

Decision

1. Alcohol and Drug Policy deductions

MAS introduced a policy whereby a first breach of the Alcohol and Drug Policy (Policy) would result in the employee being issued with a $500 “fine” payable to MAS and a second breach could lead to termination and repatriation. Between 19 January and 22 March 2022, 29 employees were deducted a combined total of $14,500. The policy was motivated by community concerns including alcohol-related domestic violence, property damage and public safety issues.

The Court found these deductions were not principally for the employees’ benefit and not authorised under section 324 of the FW Act. MAS’ director, Mr McCrystal, was personally liable for the connections under section 550(2).

2. Overtime overpayment deductions

A payroll error resulted in 28 employees being overpaid for overtime. Once this error was detected, MAS, without any regard or notification to the employees, simply deducted the amount of the overpayment from the next applicable pay cycle. The amount deducted for the overtime overpayment for the 28 employees totalled $2,548.60.

The Court held that the deductions were not authorised under the FW Act. There was no permission or agreement in writing by the employees, and they were clearly not for the benefit of the employees.

The Court found this constituted a contravention of section 323(1), as the deductions were not authorised under section 324.

3. Health insurance premium excess deductions

MAS deducted $21 per pay period from 27 employees for health insurance, though the actual premium was $18.50, resulting in over-deductions totalling $1,282.50. These deductions were similarly unauthorised and not for the employees’ benefit under section 324 and therefore contravened section 323(1).

Penalties

The Court imposed the following pecuniary penalties:

• $43,000 on MAS (comprising of $21,000 for the Policy fines, $12,000 for the overtime deductions and $10,000 for the insurance deductions); and
• $5,000 to Mr McCrystal for his involvement in the Policy fines.

The Court acknowledged that MAS promptly repaid all unlawfully deducted amounts and cooperated fully with the investigation. The Court also noted that, since that time, MAS has engaged a liaison officer with the Queensland Police Service who shares a similar background to the workers, allowing the company to focus on its core business of growing and harvesting food and managing its workforce. MAS is no longer required to act as the primary enforcer of employee behaviour outside of work, separating these community obligations from its industrial relations responsibilities.

Key takeaways for employers

• Deductions from wages are only permitted in very limited circumstances under the FW Act. Employers should be cautious and seek advice where they are unsure whether a deduction is permissible.
• Where a deduction is principally for an employee’s benefit, it must be authorised in writing by the employee. There are further procedural requirements about the contents of any such authorisation under section 324(2) which must be complied with.
• Directors and senior management may face personal liability under section 550 of the FW Act.
• Payroll systems must be capable of ensuring accurate wage payments, properly authorised deductions or reimbursements and timely correction of any overpayments or payroll errors.
• Clear documentation, transparent communication and legally compliant policies are essential to mitigate risk.

This decision reinforces that wage deductions must strictly comply with the FW Act. Well-intentioned policies, community pressures or payroll convenience cannot replace statutory requirements. Employers should review deduction practices, documentation and employee engagement to ensure compliance and minimise regulatory risk. Quick remediation and repayment can mitigate penalties but does not remove liability.

If you require assistance reviewing deduction frameworks or conducting a payroll compliance review in light of this decision, our team is available to help.

This article was written by Jessica Nicholls, Partner, and Alana De leso, Solicitor.