Margaret Goody - Akyra Strategy & Development
A recent Federal Court decision has sent shockwaves through Australian workplaces, reshaping how businesses must manage annualised salaries
under Modern Awards. The ruling—stemming from underpayment cases involving Woolworths and Coles—makes it clear: employers can no longer rely
on broad set-off clauses or average payments over time to meet Award obligations.
The Court found that set-off clauses must operate within each pay period, not across months or annually – i.e. employers must now prove every pay cycle independently satisfies all entitlements (e.g. overtime, penalty rates and allowances) under the relevant Award.
This marks a significant shift in payroll compliance. Employers using annualised salaries must urgently review their contracts, systems and
processes to avoid costly underpayment claims and potential penalties.
Key actions for employers:
1. Review employment contracts
Ensure contracts for Award-covered employees clearly state salary payments are intended to meet entitlements within each pay period. Broad clauses that offset entitlements over extended periods are no longer compliant.
2. Upgrade payroll systems
Employers must track actual hours worked, including start and finish times, overtime, and penalties. Rosters and basic time logs won’t cut it—accurate, detailed records are essential.
3. Reconcile pay periods individually
Each pay cycle must be reconciled to confirm all entitlements were paid correctly. Overpayments in one period cannot offset underpayments in another.
4. Consider moving away from annualised salaries
Under Modern Awards, a wages-based model may offer greater compliance and transparency. Annualised salaries are still legal—but now carry higher risk if not managed precisely.
5. Train HR and Payroll teams
Staff must understand the implications of the ruling, the importance of accurate record-keeping and how to reconcile entitlements correctly.
6. Prepare for back-pay risks
Woolworths and Coles face hundreds of millions in repayments. Employers should consider a payroll audit and seek professional advice if they suspect past non-compliance.
Proactive action—contract reviews, system upgrades and staff training—can protect your business and ensure compliance with the Fair Work Act.
Take action with confidence
The Federal Court’s decision is a clear signal: employers must demonstrate compliance with Award entitlements on a pay-period basis. If your business uses annualised salaries or set-off clauses, now is the time to act.
To help you get started, Akyra has developed a practical checklist that outlines the key steps to review contracts, upgrade payroll systems and ensure accurate record-keeping. It’s designed to guide employers through this transition with clarity and confidence Annualised-salaries-award-compliance-–-Employer-action-checklist.pdf.
Akyra Strategy & Development | www.akyra.com.au
