18 September 2025
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Employers who use fixed periodic salary payments (e.g. annualised salaries) to discharge wage and other monetary entitlements arising under an award or enterprise agreement, are on notice following the recent Federal Court decision handed down in September 2025 against Woolworths Group and Coles Supermarkets Australia.[1]
The ruling vindicates the long-held position of the Fair Work Ombudsman (FWO) that employers need to pay their employees in full for each pay period in accordance with the applicable fair work instrument (e.g. award or enterprise agreement) or the Fair Work Act 2009 (Cth) (FW Act).[2] While it is likely that the decision will be the subject of an appeal, it prompts employers to review the practice of making fixed periodic wage payments in respect to award or agreement-covered employees.
The decision followed proceedings issued by the FWO (together with employees represented in a class action) against Woolworths and Coles in respect of the admitted underpayment of nearly 30,000 salaried managers and team leaders.
In the decision, the Court considered the legal efficacy of so-called set-off clauses contained in employment contracts made by Coles and Woolworths with award-covered employees. These clauses purported to allow the employer to pool all over-award payments made over a six month period (in the case of Woolworths) or a 12 month period (in the case of Coles) and then deem that pool to be in satisfaction of each employer’s obligation to make payments under the General Retail Industry Award 2010 (GRIA) for minimum hourly rates, penalties, overtime, allowances and loadings arising during that period.
The Court ruled that the set-off clauses could only be effective as a means of discharging the monetary entitlements that accrued to each employee under the GRIA in the payment period adopted by their employer. Moreover, the Court determined it was only possible for the employers to discharge their obligations to pay for entitlements falling due under the GRIA in a particular pay period by making a payment in the same pay period.
For example, if an employer underpaid an employee’s award overtime entitlement in one payment cycle, the employer could not set off an overpayment of wages in excess of the minimum award rate in a later payment period against that underpayment. The Court’s decision hinged on the GRIA provisions, which requires that wages and other monetary entitlements be ‘paid’, together with section 323 of the FW Act, which requires employers to pay employees their entitlements ‘in full’ within ‘each pay period’.
The Court found both Coles and Woolworths failed to comply with their record-keeping obligations under regulations 3.33 and 3.34 of the Fair Work Regulations 2009 (Cth) (Regulations). The obligation is for employers to keep records of the number of overtime hours worked by the employee during each day or when the employee started and finished working overtime hours if a penalty rate or loading was payable for overtime hours worked. The Court ruled the contractual set-off clauses did exempt the employers of these record-keeping obligations.
The Court also ruled that roster records and clocking data are insufficient to satisfy these record-keeping obligations, finding that such records were not ‘readily accessible’ or detailed enough to be compliant. In Woolworth’s case, the time records and rosters did not explicitly record which hours managers worked were overtime, or which attracted other penalties.
The failure by both Woolworths and Coles to keep adequately detailed records triggered the ‘reverse onus’ under section 557C of the FW Act introduced by parliament in 2017. The provision operates so that if an employer fails to keep or produce accurate employment records when an underpayment claim is made, they must then disprove the employee's allegations in a prosecution or legal action – this was a significant hurdle to the employers’ defence of the underpayment claims.
Review set-off clauses
In light of the Supermarkets ruling, employers need to identify those award or agreement-covered employees who are paid fixed periodic salary payments (e.g. annualised salary). If a set-off clause is being relied upon to discharge wage and other monetary entitlements arising under an award or enterprise agreement, this is only effective within each pay period. If the set-off clause purports to provide otherwise, it may be ineffective in part or whole. In such a case, employers should take advice about an appropriate response, which may include:
Review payroll systems and remediate if necessary
Employers should also ensure existing payroll systems are configured such that reconciliation occurs in every pay cycle (e.g., weekly or fortnightly) to ensure salaried employees are paid at a level that meets or exceeds the monetary entitlements due to the employees in that pay period under any applicable award or enterprise agreement. This includes minimum wages, overtime, penalties and allowances. It also includes annual leave loading if annual leave is taken. This may require employers to invest in and adopt advanced, automated and integrated HR and payroll technology. Consideration may need to be given as to whether any remediation is required for past underpayments.
Review record-keeping
Employers should also ensure they maintain detailed and readily accessible records that specify the number of overtime hours worked each day, the start and end times of overtime hours and the details of any penalty rates or allowances payable for all award covered employees including salaried staff. It is crucial employers have systems in place that accurately capture actual hours worked – published rosters are not sufficient to constitute a record of hours of work for the purpose of triggering overtime.
Compliance in rostering and overtime
Managers should receive additional training to ensure they understand and apply the correct procedures for authorising overtime and should be held accountable for ensuring their teams accurately record their working hours. Facilitating a culture of compliance and ensuring there are clear lines of responsibility is crucial for mitigating underpayment risk.
The implications of the supermarkets decision are significant and highlight to employers that they cannot afford to adopt a ‘set-and-forget’ approach to paying award-covered employees annualised salaries. Best practice requires continuous, real-time auditing to ensure that every pay cycle meets or exceeds employee minimum award entitlements.
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[1] Fair Work Ombudsman v Woolworths Group Limited; Fair Work Ombudsman v Coles Supermarkets Australia Pty Ltd; Baker v Woolworths Group Limited; Pabalan v Coles Supermarkets Australia Pty Ltd [2025] FCA 1092 (5 September 2025).
[2] Fair Work Ombudsman Payroll Remediation Guide, April 2025 p. 16.
Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
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