Annualised salaries under fire: the Woolies & Coles wake up call

If you’ve ever paid someone an all inclusive annual salary and thought the Awards don’t apply then think again. A recent landmark Federal Court decision against Woolworths and Coles has officially shattered that illusion. Coupled with this, we know that the Albanese government is pushing for tighter rules and laws around all-in salaries, so this is a hot topic right now.

Why it’s a big deal (and why you should care)
Justice Perram’s ruling in the Woolworths/Coles underpayment case isn’t just another boring judgment to ignore. It confirmed three critical truths for anyone using annualised salary or offset clauses:

1. “Set it and forget it” is not allowed
Employers can’t pool over Award payments from one pay period to cover underpayments in another. The court made it crystal clear: set offs must operate within a single pay period that means fortnightly, monthly or weekly, depending on your payroll cycle. Attempting to offset something from Week 1 against a shortfall in Week 10? Not lawful.

2. Record keeping matters more than ever
Paying someone an “all in” salary doesn’t let you skip the details. You still need accurate records of hours worked, penalty rates, allowances, public holiday pay, break penalties you name it, you need to record it. Systems that leave employees guessing or force them to piece together entitlements from multiple sources won’t cut it. Judge Perram was firm: poor record keeping flips the burden onto you.

3. Reverse onus of proof is real
If you fail to keep proper pay records, you don’t get the benefit of the doubt. It’s on you to prove that you paid correctly. That’s a huge risk you don’t want, especially with modern underpayment liability and increased scrutiny.

The fallout: think big picture costs
Beyond the HR headaches, there’s a hefty financial kick in the guts:
• Woolworths is staring down a post tax hit of A$180 330 million, with total liabilities (including interest and tax) possibly climbing another A$140 200 million.
• Coles is looking at an extra A$150 250 million in remediation costs, on top of already repaying tens of millions. Reuters

This isn’t just about fines it’s about underpayment claims stretching back years, and the reputational fallout that comes with this.

What employers need to do (sorry, no shortcuts here) – Let’s keep it simple. Here’s your no bullshit checklist:

Action What it means for you
Review all offset clauses – If you rely on them, ensure that the pay structure fully covers each pay period any entitlements under the applicable Award.
Fix your systems and processes- Start and finish times, allowances, penalties all must be recorded clearly and correctly in each pay period. No more set-and-forget payroll systems that leave gaps.
Ensure genuine clarity in contracts -Avoid language that says the salary “covers all entitlements in full.” That can kill an offset clause if it can’t achieve full coverage every pay period. This is misleading and will open you up for claims and issues later.
Consider alternatives – Depending on your business and Awards, it might be smarter to look at formal annualised wage arrangements under the Award, IFAs, or simply pay penalty/OT rates as incurred yes, they’re administratively heavier, but the safer.
Do a compliance review – Don’t wait for a court case. Audit, fix, document. If your payroll team is flying blind, you are inviting trouble.

FAQs

The Verdict
This Federal Court ruling is a blunt reminder that paying someone well above Award doesn’t absolve you of Award obligations. You can’t hide behind an annual salary or a clever clause and hope no one notices a few missing penalty rates or OT hours.

If your payroll setup is more “close enough” than “clean and compliant,” you need to act now. Revisit your offset clauses, lock in your record keeping, and talk to someone who gets both business practicality and the Fair Work Act (that’d be us, if you’re looking).

Compliance isn’t about being perfect it’s about being responsible, transparent and ready. And trust me, the set and forget annual salaries of the past won’t hold up. If you need support then think about downloading our Wage Theft Guide.
Written By Emily Jaksch