Set-off Arrangements & Award Entitlements

Insights from Woolworths & Coles Fair Work Cases

This year, there’s been a huge focus on HR compliance with some key Fair Work cases hitting mainstream media.

One of the most highlighted was the ruling against Woolworths and Coles over “set-off arrangements” that led to underpayment of tens of thousands of employees.

Here’s a quick case summary from our friends at Gilchrist Connell (see their full summary here).

“The Award-based employees were paid annualised salaries under employment agreements containing ‘set-off’ clauses, which is a common practice in numerous industries …The retailers did not keep track of Award entitlements (including overtime, penalties and allowances) or hours of work. This, combined with a failure to reconcile amounts paid to employees against their entitlements under the Award, resulting in massive underpayments.”

In short? The ruling has set the tone for how Fair Work is interpreting set off arrangements. Here’s what small to medium businesses should know.
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Set-off arrangements

If you’re using contractual offsetting (where an above-Award salary is meant to cover Award entitlements), Fair Work still expects you to:

• Pay employees in full
• Pay them every pay period as per their Award or agreement
• Make sure pay cycles are at least monthly (or as outlined in your relevant Award)
• Include a clear set-off clause in the employment contract.

To be clear, set-off arrangements are still allowed… but only within a single pay cycle.  If your team works regular hours, you’re likely okay.

But if your business has fluctuating hours, peak/quiet periods, or unusual rostering, it’s worth checking in.
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Paying above Award isn't always enough

An “above Award” salary only sets off all entitlements if it’s high enough in every pay cycle or relevant period.

If you’re a small business, you might want to consider:

If you’re not paying significantly above Award, and you don’t have time to check entitlements every pay cycle… is trying to pay “above Award” actually beneficial?  

In some cases, paying according to the Award requirements may be simpler and safer than trying to roll everything into a salary and hoping it balances out.
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Be wary of a gap in payroll tech

Most payroll systems don’t flag when Award entitlements exceed what a salary is supposed to absorb.

That’s because these systems are built around “standard” working patterns, patterns that don’t reflect what actually happens in many workplaces.

Until payroll tech catches up, businesses need clear processes to make sure Award checks and reviews are happening regularly.
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The spotlight on record-keeping and timesheets

In their rulings, Fair Work put a big spotlight on timesheets. Timesheets for salaried employees covered by most Awards have always been a requirement… but they haven’t been common practice.

If a salaried employee is Award-covered, employers need to be able to show:

• the hours they worked
• which entitlements were triggered (penalty rates, loadings, allowances, and overtime)
• how those entitlements interacted with their salary

This can be pretty difficult to do without timesheet records!

The focus on record-keeping has been one of the biggest “quiet shifts” in compliance this year. Our recommendation? Accurate tracking of timesheets should be non-negotiable.
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The biggest takeaway? If you’re unsure, get it checked!

The Award system can be confusing, even for the 'big guys’.

In our experience, most employers want to do the right thing, but the Award system can be complex and difficult to navigate on your own.

If two of Australia’s largest employers can get it wrong, it shows interpretation can be tricky.

That's why your best bet is to get support from a HR Partner to dive a little deeper into your situation.

A quick compliance review each year could save you a lot of stress in the long run. And if it’s been a while, now is the time to ensure you feel confident you’ve got it covered.

Get in touch or book a call with one of our HR partners if you’d like to find out how we can help.

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