The Federal Court of Australia (‘Court’) has delivered a landmark decision in Fair Work Ombudsman v Woolworths Group Limited & Ors [2025] FCA 1092 clarifying the use of ‘annualised’ salaries or ‘all-in’ rates of pay to set off modern award entitlements.
This decision has significant implications for businesses relying on annualised and fixed periodic salaries to discharge wage and other monetary entitlements arising under an award.
Background
Legal proceedings and class actions were brought by the Fair Work Ombudsman against several employers, including supermarket giants Woolworths and Coles, in relation to alleged underpayments of their salaried managers within supermarkets and metro stores.
The judgement consolidated proceedings involving the Fair Work Ombudsman (FWO), Woolworths Group Limited (Woolworths), Coles Supermarkets Australia Pty Ltd (Coles) and class actions bought against the retailers by employees.
Woolworths is alleged to have underpaid approximately 19,000 managerial employees between 2015 and 2019, while Coles reportedly underpaid up to 8,000 employees between 2017 and 2020 by failing to account for entitlements including overtime, penalty rates payable under the General Retail Industry Award 2010 in their annualised salary arrangements.
Set Off Clauses
The key point of contention rested on the interpretation of ‘set off’ clauses within the company’s employment contracts.
Under these contracts, a set-off clause sought to offset minimum award entitlements across a 26-week period using the aggregate salary, rather reconciling and
paying those entitlements within each individual pay cycle (being the fortnight the employees were paid).
The Court’s Decision
The Court found that set-off clauses only work to cover an employee’s entitlements under the Award for the specific pay period chosen by the employer.
In other words, employers can only meet their obligations for entitlements due in a given pay period by making the payment within that same period.
What does this mean for your Business?
In plain terms, this means that businesses can no longer ‘pool’ payments or make up the shortfall during an account’s realisation period.
Review Employment Contracts
Businesses must ensure any set-off clauses in their contract’s tie salary payments to the satisfaction of all relevant entitlements, providing explicit reference to what is included in this figure.
Record Keeping & Reconciling
Records must be detailed enough to allow businesses to actively quantify award entitlements payable, not just total hours work.
Accurate records should be kept of:
- Hours worked;
- Overtime; and
- Penalty rates/allowances payable,
all of which must be reconciled within each pay period.
Workplace Policies
Ensure your workplace has an appropriate policy in place that defines:
- Reasonable additional hours;
- When overtime is required; and
- How these hours are compensated.
If you need assistance reviewing your employment contracts, payroll practices or compliance frameworks, our Workplace + Conduct team can help. Please contact Daniel: daniel@morganenglish.com.au
