The recent Fair Work Ombudsman v Woolworths Group (2025) decision has caused quite a stir in the HR and payroll world. The Federal Court made it clear that how employers handle pay, contracts, and record-keeping really matters. Here’s what went wrong for Woolworths and what every employer can learn from it.

What Happened

Woolworths believed it could use a set-off clause in its contracts to group extra payments made over six months and count them toward things like penalties, overtime, and allowances.

The Court disagreed. It found that payments can only be set off against award entitlements that fall due in the same pay period. You can’t “average out” or carry over extra payments to cover shortfalls later.

The Court also found Woolworths hadn’t met its record-keeping obligations under the Fair Work Act 2009 (Cth) and Fair Work Regulations 2009 (Cth). Employers must keep daily records of overtime hours worked and record start and finish times whenever penalties or loadings apply. Rosters and clock-in data on their own don’t tick that box.

This case (which is expected to be appealed) is a big reminder that clear contracts and accurate records are essential, no matter the size of your organisation.

Why It Matters

The message from the Court was simple. Paying above the award doesn’t automatically mean you’re compliant. Payments must match the timing and purpose of the award entitlements.

A general clause or “all-in” salary might sound convenient, but it only works if it genuinely covers all the entitlements owed to an employee during that specific pay period.

Key Lessons for Employers

1. Review Your Set-Off Clauses

Set-off clauses are still allowed, but only for entitlements due in the same pay cycle. Make sure your contracts clearly state what the salary covers and that your payroll process supports it.

2. Be Careful with “All-In” Salaries

A fixed salary can simplify things, but only if it truly leaves employees better off overall. If workloads rise and fall or hours vary across pay periods, a fixed salary might not always cover what’s owed under the award. It’s best to review these arrangements regularly and seek professional advice to make sure you stay compliant.

3. Keep Accurate Payroll Records

Good record-keeping is not optional. Employers must track daily hours, including overtime start and finish times. Rosters and clocking data alone don’t meet Fair Work’s requirements.

4. Conduct Regular Payroll Audits

Check your contracts against your payroll data to make sure every employee is being paid correctly for each pay period. If you find an issue, fix it quickly and record what you’ve done to address it.

5. Build a Culture of Transparency

Clear contracts and accurate records reduce risk and build trust. When employees know they’re being paid correctly, everyone wins.

What Employers Can Do Now

• Review employment contracts and set-off clauses
• Confirm all payments meet award entitlements each pay period
• Improve systems for tracking overtime and allowances
• Schedule regular HR and payroll compliance checks

A few simple changes now can prevent costly compliance issues later.

Need Help Reviewing Your Contracts or Payroll Practices?

HR Dynamics can help you:

• Audit your contracts and payroll systems
• Identify compliance gaps
• Update your documents to meet current Fair Work standards

Get in touch today to ensure your pay and record-keeping practices are compliant, transparent, and low risk!

1800 877 747 or hello@hrdynamics.com.au