A recent Federal Court decision (FWO v Woolworths Group Ltd; FWO v Coles Supermarkets Australia Pty Ltd [2025] FCA 1092) has, unfortunately, brought some common, longstanding practices in relation to annualised salary payments into question. While the decision is contrary to another recent significant decision, and is likely to be subject to challenge, the decision as it stands exposes businesses paying annualised salaries to further risk, even where they believe that their current arrangements provide for a total “above award” benefit to the employees involved.
What’s Changed?
Traditionally, many employers (including small businesses) have relied on annualised salary arrangements, particularly for employees in key operational and/or management roles. The idea was simple: pay a set annual salary that’s higher than the minimum award, on the basis that any additional hours, allowances or seasonal fluctuations would be covered by the “buffer” in the salary over a period of time.
However, this recent decision found that the practice of effectively “pooling” or averaging salary payments across pay cycles is not compliant with the Fair Work Act. Rather, the Court ruled that employers must ensure that the salary paid in every single pay cycle (weekly, fortnightly, or monthly) meets or exceeds the relevant award entitlements for that specific period (that is, they cannot rely on the employee being “better off overall” over the course of an extended period such as 26 weeks or a full year).
Main Implications of the Ruling (likely subject to appeal)
- No More Salary Pooling: Employers cannot use overpayments in one pay period to offset underpayments in another. Each pay cycle stands alone.
- Contract Clauses Won’t Save You: Even if your employment contracts say the annual salary is meant to cover all entitlements, this probably won’t protect you if the actual payment in any cycle falls short.
- Correct Record-Keeping is a Legal Obligation: The Court also found that Woolworths and Coles failed to keep adequate records of overtime worked and loadings that would have been payable (but for the annualised salary arrangement). Electronic rosters or clock-in data alone aren’t sufficient: there must be clear records of overtime worked (not just the total hours worked), and those records must be easily accessible to Fair Work inspectors if required, without them needing to reconcile records/complete calculations.
Potential Risks for Small Businesses
While the decision is likely to be appealed, there are already reports that some lawyers and other employee advocates are “licking their lips” at the potential class actions and back payments that may emerge if the decision stands. Aside from actual back payments, there is the potential for penalties, reputational damage and significant operational disruption associated with managing relevant claims/disputes.
Practical Steps to Reduce Your Risk
Whilst there’s not in our view a need to rush in and make wholesale/dramatic changes just yet, there are certainly some steps employers can begin to take to assess and manage potential risks:
- Begin to Review all Salaried Arrangements: Conduct a risk assessment – map out which employees/employee groups are most exposed to annualised salary challenges (e.g. award-covered roles with variable hours). Check that every employee’s pay in each cycle meets or exceeds the relevant award. Don’t assume “overall” compliance is enough.
- Consider Feasibility/Opportunities to Change Arrangements: It may in some cases make sense to transfer some employees from an annualised salary arrangement to standard Award or other arrangements (eg. separately pay for additional hours, overtime, penalties etc…, rather than rely on a full annualised salary arrangement). Note that consultation and revised contracts would be required.
- Consider Updating Employment Contracts: Look for opportunities to “beef up” relevant clauses (though note that if the decision stands, it may be the case that the revisions will have little impact), or look to Award provisions (refer point 5 below).
- Improve Record-Keeping: For ALL staff, keep clear, accessible records of all hours worked, including overtime and periods that might attract some form of additional payment such as penalty rates. Make sure these records can be easily provided to Fair Work inspectors if needed.
- Consider Award Annualised Wage Arrangements: Some awards allow for formal annualised wage arrangements, which will offer employers greater security than relying on contract clauses alone, but these come with strict compliance steps. If you go down this path, make sure you follow all relevant Award requirements.
- Seek Expert Advice: As mentioned above, this decision is likely to be appealed, and it’s inconsistent with other recent decisions, so proceed with caution and access specialist advice if required.
What should employers do if someone (employee or union) asks specifically about this case?
We suggest that you acknowledge the question openly and avoid giving assurances that might later conflict with the final legal outcome. You might, for example, say something along the lines of:
“We’re aware of the recent decision and are monitoring developments closely. At this stage the case is likely to be appealed, so the legal position may change. In the meantime, we’re reviewing our practices and will keep employees updated if any changes are required.”
The key is to demonstrate awareness, transparency, and commitment to compliance without making premature promises. Where concerns are raised formally (e.g. by a union or through a dispute process), seek HR/legal advice before responding in writing.
Final Thoughts
This decision, and the resulting uncertainty, presents some real challenges for employers, especially those in small businesses who may not have dedicated HR or legal teams. Even if your intention is to reward staff well and “do the right thing”, the compliance risks are real and growing.
Keep an eye on our future email updates and social media channels (LinkedIn and Facebook) for further developments in relation to this case.
If you’re unsure about your current arrangements or want help reviewing your contracts, pay practices, or record-keeping systems, get in contact. We specialise in practical, tailored HR support for small and mid-sized businesses: no lock-in contracts, retainers or hidden fees, just clear guidance you can trust.
This article provides general information which we believe to be correct at the time of posting. It is a summary and must not be considered complete, professional or legal advice. If you’re an employer and need support that takes into account your particular circumstances, please contact us directly.
