27th October 2025
By Joseph Kelly, Kelly Workplace Lawyers
New Changes in Employment Law
Recent developments in Australian employment law have prompted both employers and employees to take a closer look at how pay and entitlements are calculated. A significant decision involving Coles and Woolworths has reshaped how set-off clauses and annualised salary arrangements are viewed, reinforcing the principle that employees must be paid correctly for each pay period and not merely on average over time.
The Coles and Woolworths Decision
The Federal Court found that clauses allowing employers to “pool” or “average” overpayments across multiple pay periods (for instance, over 26 weeks) were not compliant with the Fair Work Act’s requirement that employees be paid in full and at least monthly. This decision has major implications for businesses that rely on annualised salary arrangements or broad set-off clauses to meet minimum entitlements under awards and enterprise agreements.
The practice of offsetting shortfalls in one pay cycle with overpayments in another has long been common in workplaces seeking administrative simplicity. However, the court’s reasoning was clear: each pay cycle must stand alone. Employees are entitled to receive payment for all hours worked, including ordinary time, overtime, allowances, and penalty rates within that specific pay period.
Implications for Employees
For employees covered by an award or enterprise agreement, this decision provides renewed clarity and protection. It means that employers cannot rely on an annual figure to justify underpayments in any given cycle. Each period of work must be fully remunerated according to the applicable industrial instrument.
This also strengthens transparency. Workers are better able to understand how their pay has been calculated and to ensure they are receiving the correct amounts for their hours, overtime, and penalties. If an employee discovers that their employer has been relying on a set-off arrangement that averages pay over time, there may now be grounds to challenge that practice.
Implications for Employers
For employers, the decision is a wake-up call to ensure compliance at every stage of the payroll process. It highlights the need for accurate tracking, record-keeping, and reconciliation of employee entitlements each pay cycle. Employers should take immediate steps to:
Review contracts that include set-off clauses or annualised salary arrangements;
Audit payroll systems to verify that overtime, penalties, and allowances are properly calculated and paid within each period; and
Obtain legal advice regarding any potential risks or exposure to underpayment claims.
Although the decision may still be appealed, the safest course of action is to assume the current interpretation stands. Adopting a conservative approach now will protect businesses from significant compliance risks and potential back-pay liabilities in the future.
Other Legislative Changes to Watch
In addition to the Coles and Woolworths case, the Federal Government has introduced new legislation aimed at further strengthening employee pay protections. The proposed bill seeks to safeguard penalty rates and overtime by restricting the substitution of these entitlements through arrangements such as Time Off in Lieu (TOIL). This measure aims to ensure that employees actually receive the monetary value of their entitlements, rather than being offered time off as a replacement.
Another important reform is the introduction of payday superannuation. Under this change, employers will be required to pay superannuation contributions on each pay day, rather than quarterly. This reform is designed to promote transparency, prevent unpaid super, and improve workers’ long-term retirement outcomes.
Conclusion
Together, these developments signal a broader shift toward greater accountability and fairness in workplace pay practices. For employees, they represent a stronger guarantee that entitlements will be honoured promptly and in full. For employers, they underscore the need for vigilance, accurate systems, and proactive compliance measures.
While some uncertainty remains pending a possible appeal, one thing is clear: the landscape of Australian employment law is evolving toward tighter scrutiny and stronger protection of workers’ rights. Businesses that take steps now to align their practices with these expectations will be better placed to adapt and thrive in this changing regulatory environment.
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