On 5 September 2025, the Federal Court handed down a landmark decision,[1] addressing systemic underpayments to salaried managers at Woolworths and Coles, with nearly 30,000 employees affected.
One of the central issues was whether the set-off clauses in Coles and Woolworths’ employment contracts were valid. The clauses allowed the employers to pool over-award payments over extended periods (six months for Woolworths and twelve months for Coles) and then use those payments to satisfy obligations under the Award to pay entitlements such as minimum hourly rates, penalties, overtime, allowances, and loadings accrued during that extended period. The Court held that set-off was only valid for entitlements accrued in each individual pay period, not over extended periods, and referred to the Fair Work Act 2009 (Cth) (FW Act) s 323, which requires employees to be paid in full for each pay period. Additionally, the contract clauses referring to “reasonable additional hours” did not remove the employer’s responsibility to pay overtime; if employees were directed or expected to work extra hours, those hours must be appropriately compensated in accordance with the Award.
Another key issue was compliance with the record-keeping requirements under the Fair Work Regulations 2009 (Cth), which require employers to maintain detailed records of the overtime hours actually worked by an employee, and details of any loadings or penalties they are entitled to be paid. In this case, both Coles and Woolworths failed to meet these requirements, and the existence of set-off clauses in their contracts did not excuse them from the requirement to keep proper records. Roster records and clocking data were deemed inadequate, as they were not easily accessible, and lacked the necessary detail to indicate which hours qualified as overtime or triggered penalty rates. This failure was significant, because under the FW Act s 577C, when an employer can’t produce accurate and complete records in response to an underpayment claim, the burden shifts to the employer to disprove the claim.
Key Implications for Employers
This decision sets a clear precedent: annual salaries are not set and forget. Compliance with the relevant industrial instrument must be assessed and maintained on a pay-period basis, with robust record-keeping and transparent payroll practices.
- Employers must ensure that all award-covered salaried employees receive their full entitlements in each pay period. Employers should review their arrangements for Award-covered staff and either move to a strict compliance model or look at conducting reconciliations and top-up payments.
- Comprehensive and accurate record-keeping is essential. Employers must keep detailed records of the actual hours worked by all staff, including salaried employees. These records should clearly identify hours that attract overtime and penalty rates, and breaks taken.
- It is advisable for employers to review the set-off clauses in employment contracts, as well as their current record-keeping systems and processes. This is also a timely opportunity to revisit payroll procedures and remediate any identified past underpayments.
- At the management level, clarity about overtime and rostering procedures is crucial. Ensure that overtime authorisation processes are clear and that all hours worked are accurately recorded.
[1] Fair Work Ombudsman v Woolworths Group Limited; Fair Work Ombudsman v Coles Supermarkets Australia Pty Ltd; Baker v Woolworths; Pabalan v Coles [2025] FCA 1092
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