A recent decision of the Federal Court of Australia has highlighted major risks for employers who rely on annualised salary arrangements when employees are also covered by a modern award.
Why this matters for employers
The Court examined key issues that employers should take note of:
1. Set-off clauses and award entitlements
The Court confirmed that, under the Fair Work Act, award entitlements must be met through actual payments within the relevant pay period. Employers cannot simply rely on broad set-off clauses to justify that a higher annual salary covers award obligations.
2. Record-keeping is non-negotiable
The Court found that both Woolworths and Coles breached statutory record-keeping duties, despite paying “all-inclusive” salaries.
- Rostering or clocking data is not enough to satisfy requirements.
- Detailed records must be kept in line with the Fair Work Regulations.
- Failure to keep records can shift the legal burden onto employers to disprove claims – making it even riskier.
3. Employee agreement to vary award rights
Employers must show objective evidence that an employee both understood and agreed to give up an award entitlement. Simply assuming agreement because of a salary contract is not sufficient.
4. Award interpretation and underpayment calculations
The Court addressed technical issues such as overlapping overtime provisions, penalty rates, and how to calculate underpayments when hours and records are unclear. The ruling makes it clear that without robust records, the Court is unlikely to accept employer calculations at face value.
5. Considering other payments
The Court also examined whether bonuses, over-award salaries, or previous remediation payments could be counted towards compensation for underpayments.
The takeaway for businesses
This case is a powerful reminder that:
- Annualised salaries don’t eliminate award obligations.
- Employers must maintain accurate and complete records regardless of contractual terms.
- Any attempt to offset award entitlements must be carefully structured and reviewed for compliance.
For large employers, the financial and reputational risks are enormous—but smaller businesses are not immune.
