The decision in brief

• In September 2025, the Federal Court ruled in proceedings involving Coles and Woolworths that annualised salaries with set-off clauses cannot offset entitlements across long periods (e.g. six months or annually).

• Instead, award entitlements must be satisfied in each individual pay period (weekly, fortnightly, etc.). If a salary doesn’t cover what’s owed under the award for that pay period, the employer must make a top-up payment in that same cycle.

• The Court expressed doubt that any drafting could validate “pooling” or “averaging” across multiple periods.

Why this matters beyond retail

While the case involved the General Retail Industry Award, the principles apply to any award-covered salaried employees where set-off clauses are used, especially in industries with:

• Variable or irregular hours (hospitality, health, education, clerical, call centres, logistics, manufacturing, professional services).

• Shift and penalty loadings (hospitality, aged care, health, transport).

• Frontline management roles on salaries (store managers, duty managers, supervisors, coordinators).

Key implications

1. Per-pay-period compliance only no more offsetting underpayments in one period with overpayments in another.

2. Set-off clauses remain valid, but narrowly only within the same pay period.

3. Record-keeping is critical employers must capture actual hours, overtime, and penalties to test compliance period by period.

4. Remediations may need recalculation any past remediation based on 6- or 12-month averaging should be revisited.

5. Enforcement risk is rising FWO, unions, and class action firms will use this ruling to pursue underpayments in other sectors.

Actions for HR

• Review contracts remove references to offsetting over extended periods. Update templates to state that salaries are intended to cover award entitlements within each pay period only, with top-ups where needed.

• Audit salary coverage check whether current salaries genuinely cover likely award entitlements week to week.

• Strengthen systems ensure time & attendance data is captured for all award-covered salaried staff (not just hourly). Configure payroll to test each cycle and auto-calculate top-ups.

• Consider alternatives where annualised salaries are impractical, explore:

• Award-based annualised wage arrangements (where allowed),

• Individual Flexibility Arrangements (IFAs), or

• Guarantees of annual earnings (for high-income threshold employees).

• Educate leaders managers need to understand that “on a salary” does not mean unlimited hours, compliance is tested each pay.

• Board/leadership updates include payroll compliance in governance reporting; penalties and reputational risks are escalating.

Example clause (directional only)

• Do not use: “Your salary satisfies all entitlements over a 26-week/annual period…”

• Use instead: “Your salary is paid on the understanding it covers your minimum wages and applicable entitlements within each pay period. If entitlements exceed your salary in any pay period, the Company will make a top-up payment in that cycle.”

Bottom line: If you pay award-covered employees a salary, you must ensure full award compliance in every pay period. The “banking” or “averaging” approach is no longer legally defensible, regardless of industry.

Sources:

Federal Court latest judgments listing for the joint Coles/Woolworths matter: [2025] FCA 1092 (Employment & IR NPA). fedcourt.gov.au

Award references and scope: General Retail Industry Award 2020 (current consolidation). Fair Work Commission

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