This month the Federal Court of Australia delivered a significant decision in consolidated proceedings involving the Fair Work Ombudsman (FWO), two major retailers, and class actions brought by employees. The case centred on salaried managers who were covered by the General Retail Industry Award 2010 (GRIA).
While the Court has not yet determined penalties or compensation, the amounts could ultimately reach close to $1 billion. The judgment provides crucial guidance on how annualised salaries, set-off clauses, and record-keeping obligations must operate under the Fair Work Act 2009 (Cth) (FW Act) and the GRIA.
Set-off clauses must be limited to each pay period
One of the central issues in the case was whether the employers could use set-off clauses to balance over-award payments in one period against shortfalls in another.
One of the retailer’s contracts tried to pool entitlements over a 26-week period, with staff receiving a fixed fortnightly salary. The other retailer used five different variations of set-off clauses across its contracts.
The judge rejected these arrangements, describing one of the systems as an “accounting abstraction” that created an “imaginary pool of money” across pay cycles. It was ruled this approach did not satisfy the requirement under the FW Act and the GRIA to pay employees “in full” each pay period.
The Court concluded that set-off clauses can only discharge obligations within a single pay period. The judge went further in non-binding commentary, stating it was “unlikely that payments which have occurred in past pay periods can be characterised as payments for the purposes of the [GRIA], and vice versa for payments to be made in the future.” This suggests even careful redrafting will not enable pooling across multiple periods.
The implication for employers is that over-award salaries must meet all minimum entitlements in every pay cycle. Businesses relying on averaging arrangements should urgently review contracts and payroll practices and closely monitor further progress in this matter.
It is important to note that this ruling is contradictory to an April 2025 Federal Court Full Bench ruling. In Corporate Air Charter Pty Ltd v Australian Federation of Air Pilots the full bench found that a pay period in this case was employees’ 12-month salaries, allowing for offsetting between pays but not between years.
Record-keeping obligations apply to salaried staff
Both retailers argued they did not need to keep detailed records of overtime and allowances for salaried managers, as those entitlements were absorbed into all-inclusive payments. The Court rejected this, confirming that:
- Employees remain “entitled” to award benefits, even if paid via a salary.
- Records must show not just payments made, but how figures such as penalty rates were calculated.
- Simply holding rosters or clock-in data is insufficient, records must be “readily accessible” and capable of inspection by a Fair Work Inspector or by employees.
For example, if a penalty rate depends on ordinary hours worked, records must include the ordinary hours, the reason the penalty applied, and the calculation. Deduction from multiple data sets by an inspector does not meet the requirement.
As a result of this decision, employers must keep clear, standalone wage and hours records for salaried staff in addition to those records for hourly staff. Those records will need to include the records of the value of entitlements the employee would have received if there were not paid a salary or annualised wage
Agreements must be real and informed
The Court also examined what counts as a valid “agreement” between employer and employee to vary award rights. One retailer relied on a policy that public holiday hours would be automatically banked as time off in lieu. The court rejected this as evidence of agreement, finding it was not clear employees understood they were giving up penalty rates. Similar conclusions applied to alleged agreements about rest breaks, overtime, and roster changes.
The Court stressed that agreement requires evidence that the employee understood their entitlement and chose to forgo it. A policy or unilateral statement by the employer will not suffice. Where awards require employee agreement, businesses must secure clear, documented consent—not rely on policies or assumptions.
Leave and public holidays count as hours worked
Another issue was whether authorised leave or rostered public holidays should count towards rostered hours for overtime purposes. The court found they do.
The Court reasoned that excluding them would make award entitlements “chimerical”, illusory, because employees would be forced to make up the hours. He described that outcome as “outlandishly unfair and worse impossible.”
As a result of this finding, when calculating hours worked and overtime triggers under the GRIA, leave and public holidays must be treated as worked time.
What happens next?
The Court has listed a case management hearing for 27 October 2025 to determine how declarations will be made and to identify which employees are directly affected by each finding. Only after this will compensation and penalties be decided. Both retailers are deciding whether to appeal the decision.
Key actions for employers
Despite the ruling relating primarily to the GRIA, this ruling has implications across all industries where modern awards apply. As a result, employers should:
- Review set-off clauses to determine whether they apply within a single pay period only.
- Audit payroll systems so that salaries meet all award entitlements each pay cycle.
- Strengthen record-keeping by creating clear, accessible records of hours, overtime, penalties, and allowances.
- Re-examine employee agreements and obtain clear evidence of consent where awards allow variation.
- Check leave and holiday treatment in payroll systems to ensure they count toward hours worked.
The Federal Court’s decision makes it clear that employers must pay careful attention to how annual salaries and set-off clauses are structured, how entitlements are recorded, and how employee agreements are documented. The judgment leaves little room for “averaging out” pay or relying on informal policies.
For employers, this is a timely reminder that compliance must be assessed on a pay-by-pay basis, backed by accurate records and genuine agreements. Those who take proactive steps now will be far better protected against underpayment claims and regulatory action.
How can Business Chamber Queensland help?
Navigating these changes to common practices are likely to be complex and time-consuming for employers. Business Chamber Queensland provides practical support to help businesses reduce risk and stay compliant.
Our team can assist with:
- Payroll and compliance audits – reviewing pay practices to confirm they align with award and legislative requirements.
- Employment contract reviews – ensuring set-off clauses, annualised salary provisions, and flexibility arrangements are legally sound.
- Record-keeping guidance – helping employers establish transparent systems for tracking hours, overtime, penalties, and allowances.
- Tailored training – equipping managers and payroll teams with the knowledge to correctly apply award rules and manage employee agreements.
- Advisory support – providing ongoing, practical advice to resolve issues quickly and prevent disputes.
By working with Business Chamber Queensland, employers can be confident their pay structures are compliant, their records are audit-ready, and their workplace practices meet the standards now clarified by the Federal Court.
Business Chamber Queensland members with HR services as part of their membership are invited to contact the Workplace Advisory Services team:
P: 1300 731 988
Businesses who do not have a HR membership may also seek assistance however a competitive consultancy fee will apply for any advice and assistance provided.
For membership enquiries, please contact our membership team on 1300 731 988.
Decisions:
Fair Work Ombudsman v Woolworths Group Limited; Fair Work Ombudsman v Coles Supermarkets Australia Pty Ltd; Baker v Woolworths Group Limited; Pabalan v Coles Supermarkets Australia Pty Ltd [2025] FCA 1092
Corporate Air Charter Pty Ltd v Australian Federation of Air Pilots [2025] FCAFC 45
