If you employ staff on an annual salary, recent Fair Work decisions have clarified some important changes â and they affect more small businesses than many realise.
The good news?
This isnât about panic or drastic changes.
It is about understanding whatâs expected now and making sure your systems protect your business moving forward.
Letâs break it down in plain English.
Whatâs changed?
Recent Federal Court cases involving large employers (including Woolworths and Coles) have clarified how annual salaries and award set-off clauses must work under the Fair Work Act.
The key takeaway is simple:
Each pay period must stand on its own.
You can no longer rely on paying âabove awardâ in one pay period to make up for a shortfall in another.
What does that mean for annual salaries?
Previously, many businesses believed that as long as an employeeâs salary was generous overall, it could âaverage outâ across the year.
That approach is no longer acceptable.
Now:
- Every pay run must cover what the employee would have earned under the award
- Based on the actual hours worked in that pay period
- Including overtime, penalties, and allowances
If the salary doesnât fully cover it in a particular pay period, a top-up payment must be made immediately.
Are set-off clauses still allowed?
Yes â but with limits.
A set-off clause allows an annual salary to cover things like overtime and penalty rates.
However:
- The salary must be high enough every pay period
- Any shortfall must be identified and paid straight away
- Employers must be able to prove this with records
A set-off clause does not remove the need for proper record keeping.
Record keeping: the biggest shift for many businesses
This is where expectations have tightened the most.
Employers must now keep accurate records showing:
- Days worked
- Start and finish times
- Actual hours worked
- Overtime hours
- Penalty rates, loadings and allowances
Rosters or clock-in systems alone are not sufficient.
Payslips must also clearly show the employeeâs annual salary rate.
Strong record keeping isnât just a compliance requirement â itâs your best defence if your payroll is ever questioned.
What does this mean in practice?
Each pay period, you should be able to:
- Compare what the employee was paid
- Against what they would have earned under the award for those hours
- Confirm the salary covered it â or top up if required
Time off in lieu (TOIL) can still be used instead of overtime payments, but it must be agreed in writing and properly recorded.
What should small businesses do now?
Before EOFY, itâs a good idea to:
- Review salaried employees and their hours
- Check employment agreements and set-off clauses
- Ensure time-keeping systems capture actual hours worked
- Reassess salaries when award rates or work patterns change
This isnât about creating extra admin â itâs about ensuring your business is protected and compliant as it grows.
How NBK Services can help
At NBK Services, we work proactively with our clients to:
- Review payroll and salary structures
- Strengthen record-keeping processes
- Ensure compliance without overwhelm
- Align payroll with strategic business planning
This is the Strategic Bookkeeper difference â combining compliance with clarity, planning and peace of mind.
If youâd like support reviewing your current arrangements or setting up compliant systems before these changes impact you, weâre here to help.
đ Reach out to NBK Services to start the conversation.
Jennifer Van De Wouw
Founder & CEO
NBK Services Pty Ltd
Strategic bookkeeping | Payroll | Compliance | Planning & Strategy
đ 1300 914 330
đ www.nbkservices.com.au
Further Reading is recommended: In this blog we have attempted to break down and simplify some of these changes based on the Steadfast HR Newsflash Newsletter below and the Fairwork Ombudsmen Website.
Offsetting and record-keeping for salaried employees – Fair Work Ombudsman
