On 5 September 2025, the Federal Court delivered a significant judgment involving the Fair Work Ombudsman, Woolworths Group Limited, Coles Supermarkets, and class actions brought by employees of both retailers. The decision serves as a clear warning: employers who rely on set-off clauses or neglect proper record-keeping under the Fair Work Act 2009 (Cth) face serious compliance risks.

What happened?

The case involved more than 30,000 full-time employees classified under the General Retail Industry Award 2010 but paid annualised salaries that were intended to “set off” Award entitlements such as overtime, penalty rates, and loadings. The Court was asked to determine whether those contractual arrangements satisfied the minimum Award requirements.

Set-off clauses under scrutiny

Employers often use annualised salaries to simplify pay arrangements and capture all Award entitlements. However, Justice Perham confirmed that such clauses cannot override the requirement in s 323 of the Fair Work Act for wages to be paid “in full” for each pay period.

Woolworths’ and Coles’ contracts allowed excess payments in one period to offset underpayments in another—over six- and twelve-month cycles respectively. The Court found this approach inconsistent with the Act and the Award. Set-off clauses can only operate within the boundaries of each pay period. Employers cannot cure an underpayment in one cycle by offsetting it against an overpayment in a later one.

The message is clear: contractual set-off arrangements remain lawful only if they ensure employees receive their minimum Award entitlements for the specific pay period in which the work was performed.

Record-keeping obligations reinforced

The Court also highlighted serious failures by both retailers to comply with record-keeping obligations under the Fair Work Regulations 2009 (Cth). Regulations 3.33 and 3.34 require employers to keep accurate daily records of overtime hours, start and finish times, and applicable penalty rates or loadings.

Woolworths and Coles relied on rosters and clock-in data, but the Court held that such materials do not meet the statutory requirements. Employers must maintain clear, accessible, and contemporaneous records (rosters alone are insufficient, and data compiled from multiple sources does not satisfy the law).

What this means for employers

This decision raises the bar for compliance. Employers using annualised salaries must:

• Ensure set-off provisions operate within individual pay periods, not across months.
• Audit payroll systems to confirm each employee is paid at least their Award entitlement every cycle.
• Keep detailed overtime and penalty rate records that are complete and accessible.

The core lessons are already clear. Employers cannot rely on broad set-off clauses or informal record-keeping practices as a defence to underpayment.

 Need help?

If you employ staff under an Award or use annualised salary arrangements, now is the time to review your contracts and payroll records.

For tailored advice, contact Brenton Priestley, Partner, or Sinisa Popovic, Senior Associate.

This summary is general in nature and does not constitute legal advice.