FWO v the Supermarkets - What Employers Need to Know About Set-off Clauses and Annualised Salaries

Employers relying on annualised salaries to meet award obligations face new uncertainty after the Federal Court’s decision in Fair Work Ombudsman v Woolworths Group Ltd. The ruling narrows the scope of common law set-off clauses, limiting their effect to a single pay period and preventing employers from offsetting over- and under-payments across longer periods such as six months or a year. The Court’s interpretation of section 323 of the Fair Work Act means award entitlements, including penalty rates and overtime, must be paid in full each pay period.

This shift complicates the use of annualised salaries for employees covered by modern awards, as employers can no longer use contracts to smooth these entitlements over a year. While previous cases permitted annualised averaging, the Woolworths decision marks a significant departure, highlighting the complexity of Australia’s workplace laws. To ensure compliance and reduce risk, employers should consider using annualised salary provisions within modern awards or enterprise agreements and ensure their time and wage recording is compliant.