Employers who pay loaded rates or annual salaries to their award-covered employees should take careful heed of a long-awaited decision handed down by Justice Perram last Friday in the Federal Court of Australia. The case involved multiple proceedings (that were being heard together) against Woolworths and Coles and included prosecutions by the Fair Work Ombudsman and wage underpayment class actions. While the decision may be subject to an appeal, in the immediate term, employers will need to carefully assess their approach to payroll compliance, record keeping and the adequacy of employment contracts for salaried employees and those paid loaded rates.
Background:
The case concerned store-based managers at Woolworths and Coles supermarkets who were covered by the General Retail Industry Award 2020 (Retail Award) and were paid all-inclusive salaries. The employees were predominantly engaged under written employment contracts which contained set-off provisions. Those set-off provisions effectively sought to apply each manager’s salary against all entitlements (e.g. overtime, allowances, annual leave loading, etc) that may be owed to them under the Retail Award.
Key outcomes:
Justice Perram, in a densely worded judgment spanning 195 pages, essentially found that:
- For award covered employees, a properly drafted set-off clause could allow for the payment of loaded rates or an all-in salary (where the set-off clause specifically provided for the nominated award entitlements being met by the salary or loaded rates) but only over the maximum pay cycle specified in the award (which in the case of the Retail Award was 2 weeks). This means that employers cannot use set-off clauses to average out payments made to employees over a longer period, such as over 12 months.
- Rosters and clocking data kept by the supermarket employers (e.g. start and finish times) are not sufficient to meet the employers’ obligation to keep time and wages records. More detailed records must be created and kept that, for example, detail the number of award overtime hours worked by each employee every week.
Actions to be taken:
As we noted above, this decision may ultimately be subject to an appeal and different conclusions may well be reached by superior courts. However, for the time being, employers should immediately reflect upon how this decision may impact their business and approach to payroll. In particular, employers should:
- ensure salaried and loaded rate employees who are covered by an award receive sufficient pay each pay period to meet all of their minimum award entitlements for hours worked in that period (i.e. introduce a system of regular pay reconciliations to make this assessment);
- review the adequacy of employment contract terms for award-covered employees who are paid a salary or loaded rate;
- consider transitioning lower paid salaried and loaded rate employees onto hourly pay, to avoid the risk of pay shortfalls regularly arising in discrete pay periods (noting that this decision stands for the proposition that surplus pay in other pay periods cannot be drawn upon to account for the shortfall);
- if an applicable award contains an annualised wage arrangement provision, consider whether this methodology is preferrable (noting the benefits of averaging over 12 months, although there are additional administrative requirements that must be met);
- ensure that detailed pay records are maintained for all employees, including salaried employees and those paid loaded rates (noting that these records need to include sufficient information to determine any separately identifiable amounts that the employee would be entitled to under the award, e.g. loadings, penalty rates, overtime or allowances – even if those amounts are not being separately administered); and
- if any part of your workforce is covered by the Retail Award, very careful review of this decision should be undertaken to ensure your existing payroll practices (e.g. overtime triggers, etc) align with the interpretation taken by Justice Perram and you should seek further advice where necessary.
We will be conducting an HR Forum on the impact of this significant decision on Wednesday, 17 September 2025 at 1:00pm. Please contact admin@hmblaw.com.au if you or a colleague would like to attend this session. If you have any questions about this, or any other matter, please contact a member of the HMB Team at admin@hmblaw.com.au.
