Employee Records And Award Set-off Clauses

A recent decision of the Federal Court involving Woolworths and Coles¹ emphasises the need for employers to retain sufficient employee records to verify that employees' salaries are high enough to discharge all relevant award entitlements.

What is an Award Set-Off Clause?

An award set-off clause facilitates the payment of a salary in discharge of award entitlements. The salary must be greater than the underlying award entitlements each pay period, following the Woolworths and Coles decision.

A well-drafted award set-off clause can provide that the payment of a contractual obligation in a pay period, such as a salary, can discharge payment obligations under an award in the same period. However, payments under a contract for another purpose, such as a car allowance or bonus, can only be applied for that purpose.

Employee Records

The decision highlights that award set-off clauses do not relieve employers of their record keeping obligations under the Fair Work Act 2009 (Cth) and Fair Work Regulations 2009. Further, roster records and clocking in and out data will not satisfy these obligations.

Relevant provisions of the Fair Work Regulations in this context are:

• Regulation 3.33, which provides that where an employee is entitled to incentive-based payments, bonuses, loadings, penalty rates, allowances or other identifiable monetary entitlements, employee records detailing these payments must be kept, and
• Regulation 3.34, which provides that where penalty rates or loadings apply for overtime worked, employee records detailing the number of overtime hours worked each day or start and finish times of overtime worked must be kept.

However, these types of records will not be sufficient to assess if an employee's salary is high enough to satisfy underlying award entitlements when an award set-off clause is used. To do that, employers should keep records of:

• the days on which employees work
• the hours worked each day, and
• when those hours are worked, including starting and finishing times.

Whilst it is acknowledged that keeping these types of records is onerous (in addition to complying with statutory record keeping obligations), if these types of records are kept, they can be used to:

• verify if an employee's salary is greater than all award entitlements, each pay period, and
• potentially defend claims for award entitlements, if there is a well-drafted set-off clause in the employment contract.

Conclusion

The decision has highlighted that award set-off clauses should not used on a 'set and forget basis'. Employees' salaries should be reviewed at the start of the relationship and periodically, including after award rate increases, to ensure they are high enough to discharge all award entitlements.

Footnotes

¹ Fair Work Ombudsman v Woolworths Group Limited; Fair Work Ombudsman v Coles Supermarkets Australia; Baker v Woolworths Group Limited; Pablan v Coles Supermarkets Australia Pty Ltd [2025] FCA 1092.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.