20 October 2025
Fair WorkWagesEmployment ContractsPharmacy Industry AwardA landmark decision.
On 5 September 2025, the Federal Court of Australia handed down a landmark decision in Fair Work Ombudsman v Woolworths Group Limited & Coles Supermarkets Australia Pty Ltd. This is a significant decision for the way it will inform how employers approach annualised salary arrangements and setting- off clauses.
The key takeaway from this decision is that informal off-set clauses — including those which are contemplated by employment contracts — are no longer a sufficient safety net for employers trying to simplify their payroll. Such clauses offer no protection unless they apply per pay period.
The case was centred on salaried managers at the two supermarket giants, covered by the General Retail Industry Award 2010. The Court considered if Coles and Woolworths could rely on above award annual salary arrangements to absorb employee entitlements, including overtime and penalty rates. Both supermarkets had used employment contracts that allowed them to ‘pool’ salary arrangements over a 26-week period, offsetting overpayments in one pay cycle against underpayments in another.
In its decision, the Federal Court of Australia clarified that such payment arrangements are unlawful. Under s 323 of the Fair Work Act, employers are obligated to pay employee entitlements in full for each pay period in which they arise.
Further, Coles and Woolworths failed to maintain records that ensured employee salaries met minimum entitlements, omitting overtime hours, penalty rates, and other monetary allowances from respective employment records.
The Federal Court’s findings underscore the compliance threshold for employers using annualised salary and/or contractual offsetting arrangements and reinforce several key principles.
- Payroll compliance must be at the granular level. Employers who use lawful offsetting arrangements must ensure that employees are not paid any less than their fullaward entitlements in each pay cycle, including overtime and penalty rates. The averaging of wages over cycles other than the fixed pay period — be it over months or quarters — is not legally allowed.
- Employers must also ensure they maintain detailed records of hours worked, including overtime and penalty rate shifts. Pharmacies that rely on informal rostering or verbal agreements may now face an increased risk of non-compliance as inadequate record keeping shifts the burden of proof to the employer in disputes. The Fair Work Ombudsman (FWO) has published guidance on employer’s record keeping obligations which can be found here.
Importantly, formal annualised wage agreements under a Modern Award or Enterprise Agreement are not impacted by the decision and remain permissible. This includes, for example, those arrangements found within clause 18 of the Pharmacy Industry Award 2020 (PIA). However, this formal arrangement can only be applied to a pharmacy assistant level 4, or any of the pharmacist classifications. Set off arrangements that fall outside of the scope of a formal annualised salary agreement covered by the PIA (or an enterprise agreement) must be compliant within each pay period.
In the shifting industrial relations landscape, strict compliance with payment requirements is attracting a great degree of scrutiny, and proactive audits and system upgrades to ensure compliance are crucial.
The FWO has prepared some general guidance in response to the Decision which can be accessed here.
If you have any questions or need advice or assistance, please contact the Guild’s Workplace Relations advisors to discuss your situation.
Please note: different arrangements may apply for pharmacy employees in the WA state industrial relations system, pharmacies should contact the WA Branch or visit the State specific information here.