Federal Court decision against Woolworths and Coles: A compliance wake-up call for employers with set-off clauses

At a glance

• In a landmark decision in September 2025, the Federal Court clarified that employees must be paid their minimum entitlements under the relevant modern award in each pay period.
• The Federal Court also emphasised employers must maintain records of pay and overtime, even for salaried employees.

Key takeaways for employers:

• Employees must be paid their full entitlements for work performed in each pay period.
• Employers can no longer offset overpayments in one pay period against underpayments in another pay period.  Award payments can only be offset within the specific pay period.
• Employers have an obligation to maintain complete and accurate employee records, even for salaried employees. Records should be accessible and must capture:
  • Pay records - including remuneration details, deductions, and any entitlements like bonuses or penalty rates.
  • Overtime records - including number of overtime hours worked or start / end times of overtime hours.

Even where an employee is paid an annualised salary, a set-off clause which is sought to apply for the annual period is not enforceable.  To be compliant with modern award obligations, employees must now be paid their minimum entitlements as per the relevant modern award in each ‘pay period’ as defined by the award. 

Employee records should clearly show how entitlements like penalty rates are calculated. Simple timesheets, rosters or clock in / out data will not be adequate to meet the overtime records requirement under the applicable regulations.