The recent Federal Court ruling in Fair Work Ombudsman v Woolworths Group Ltd [2025] FCA 1092 will have significant implications for employers using annualised salaries and set-off clauses to meet award entitlements like overtime, penalty rates, and allowances.
In this case, the Court clarified that set-off clauses must apply strictly within individual pay periods—excess payments in one cycle cannot offset shortfalls in another. Each salary payment must independently satisfy all award obligations for that specific period.
Even with set-off clauses, employers may face underpayment claims if salaried employees work fluctuating hours and entitlements aren’t met per pay cycle. The risk increases where employers lack proper records of hours worked. Under section 557C of the Fair Work Act, missing records shift the burden of proof to the employer in underpayment disputes.
The decision also confirmed that record-keeping obligations under the Fair Work Regulations remain in force—even when employees are paid annual salaries intended to absorb entitlements. Employers must still document hours worked and how entitlements are calculated and paid.
This decision serves as a timely reminder for employers to take a closer look at how they manage award entitlements under annualised salary arrangements. While set-off clauses and salary packaging can offer flexibility, they must be carefully structured to ensure compliance on a per-pay-period basis.
Employers should also be mindful of their ongoing record-keeping obligations, even where salaries are intended to absorb entitlements like overtime and penalty rates. Keeping clear and accurate records will not only support compliance but also help protect against potential underpayment claims.
If you have any questions as to how the above may affect your business, please reach out to the Employment Law team at Osborn Law on (02) 4927 2900.