‘All-in’ salaries just got hard: Federal Court redraws the map (Coles & Woolworths)

The Federal Court has held that above-Award salaries can only “set off” Award entitlements within the same pay period.  No more annual (or 26-week) wash-ups.  And yes, you must keep detailed overtime/penalty/allowance records, even for salaried staff.  Rosters and clocking data alone won’t cut it. Absent a successful appeal of the decision (an appeal is highly anticipated), the current legal position following this case emphasises the complexity of our industrial relations framework.

Key facts & outcome

• Who & what: Four proceedings (two FWO; two class actions) against Coles and Woolworths over alleged underpayments to store-based managers on annualised salaries under the General Retail Industry Award 2020.

• The issue: Could “all-in” salaries and contractual set-off clauses soak up Award entitlements over longer periods without pay-period reconciliation?

• The ruling: Set-off is confined to the pay period (weekly/fortnightly).  Surpluses in one cycle cannot be banked to cover shortfalls in another.

• Records: Paying an all-inclusive salary does not relieve record-keeping duties under the Fair Work legislation.  Employers must keep separate, accessible records showing overtime hours and the basis for penalties/loadings/allowances.

• Hours and Bonuses: “Reasonable additional hours” clauses can evidence that overtime was required; bonus plans don’t offset underpayments without a direct, causal link.

Key findings

Set-off & pay cycles

• Each pay period must stand alone: the single salary payment in that period must be enough to discharge underlying Award entitlements in that same period.

• No pooling/averaging across months or a 26-week window – those are “accounting abstractions” (according to the Court), not payments to employees.

• Overpayments in one cycle don’t cancel underpayments in another.  

Record-keeping (for salaried staff too)

• Employers must keep records of what entitlements were triggered (penalties, loadings, allowances) and why/how they were calculated.

• Employers must record daily overtime hours and start/finish times of that overtime where payable.

• Rosters/clock-ins alone are insufficient: records must be readily accessible to an inspector and capable of being provided to employees.

• Poor records can flip the burden of proof (s 557C of the Fair Work Act), leaving the employer to disprove alleged hours/entitlements.

Agreements that vary Award entitlements

• Where Awards allow employer-employee agreements (e.g., 10-hour rest breaks instead of 12; TOIL; span of hours/public holiday substitutions), the employee must know the right they are giving up and clearly agree to forego it.

• A mere acceptance of a roster is not enough.  The employer bears the onus of proving a compliant agreement, ideally with a written record explaining the entitlement and the change.

“Reasonable additional hours”

• A standard clause requiring “additional hours reasonably necessary” can, in context, support that overtime was required (relevant where an Award ties overtime to employer requirement).

Bonuses & offsets

• Bonus schemes are separate entitlements.  They don’t reduce underpayment liability unless there’s a provable, direct link to the Award obligation in the same pay period.

Key action items

1) Review contracts & set-off mechanics

• Review employment contracts and drafting of any set-off clauses.

• Review “reasonable additional hours” clauses with reference to applicable Award language.

2) Move from “annualised” to “per-period” compliance

• Implement pay-period reconciliation of actual hours/salary vs Award entitlements (overtime, penalties, allowances).

• Treat any shortfall as a must-pay item in that cycle, no carry-forwards.

3) Upgrade time & attendance + payroll

• Align timekeeping and payroll so entitlements are identified and priced each cycle, spreadsheets won’t cope at scale.

• For WFH/flexible staff, consider adoption of practical ways to capture real hours (clear expectations; simple digital timesheets; manager sign-off).

4) Record-keeping that actually meets the test

• Keep separate, accessible records, including overtime hours (with start/finish times).

• Ensure records are legible, in English, readily exportable, and retained 7 years.

• Don’t rely on rosters/clock-ins alone; keep the calculation trail that shows why and how each entitlement arose.

5) Tighten Award-variation agreements

• Where the Award permits agreement (e.g., 10-hour breaks, TOIL, span/public holiday swaps), use a brief written form that:

  • identifies the original entitlement,

  • states the variation, and

  • captures the employee’s informed agreement (dated and stored).

• Maintain a register of such agreements for inspection and employee access.

6) Governance, audits & remediation

• Run an immediate risk audit on salaried Award-covered roles: time capture, reconciliation, and records.

• Where underpayments are found, remediate promptly and document the basis and calculations.

• Train managers on rostering, overtime approval, and record accuracy; set expectations that compliance is per pay period.

• Consider whether an enterprise agreement (with BOOT compliance) better fits operational needs than “all-in” salary models.

7) Culture & communication

• Position the shift as a fair-pay and transparency initiative, not just a compliance burden. This helps secure buy-in from salaried staff to record hours accurately.

Why this matters now

• The compliance lens just tightened: being “better off overall” on an annual view no longer shields shortfalls within a given pay cycle.

• Underpayment risk multiplies where hours fluctuate (managers, supervisors, WFH).

• Trust and retention benefit from visible, per-period fairness. This is a leadership opportunity, not only a legal necessity.