A recent Federal Court decision has fundamentally changed how Australian employers must think about annualised salaries, offset clauses and the Better Off Overall Test (BOOT).
Often referred to as the “pay period boundary” ruling, this decision has wide ranging implications for payroll, HR, employment contracts and record keeping practices across all industries — not just retail.
In this article, we break down what the ruling means, why it matters, and the practical steps employers should be taking now to reduce risk and ensure ongoing compliance.
The Background: Why This Case Matters
The decision arose from a class action involving Woolworths and Coles, relating to the underpayment of salaried managers on annualised salary arrangements.
The relevant periods examined were 2013–2019 for Woolworths and 2014–2020 for Coles, covering more than 10,000 salaried managers at Coles alone.
At the heart of the case was a common employer practice:
averaging employee entitlements over long periods (such as 26 weeks) and relying on contractual offset clauses to argue that employees were “better off overall” when assessed across multiple pay periods.
The Court rejected this approach.
The Core Finding: Each Pay Period Stands Alone
The key takeaway from the ruling is simple — but powerful:
- Each pay period creates its own legal obligation.
Employers cannot use over payments in one pay-period to offset underpayments in another.
Compliance must be assessed within each individual pay cycle (weekly, fortnightly or monthly).
This fundamentally shifts how the BOOT, offset clauses and annualised salary arrangements must be applied in practice.
What Changed Under the New Pay Period BOOT
The Court clarified several important principles that now apply to award covered employees:
1. Offsetting Is Limited to the Same Pay Period
Any “set-off” between salary and award entitlements must occur within the same pay period.
Pooling over payments across multiple pay cycles is no longer legally valid.
2. Annualised Salaries Are Still Permitted — But Only If Properly Calibrated
Annualised salaries have not been abolished.
However, they must be carefully calculated to ensure they cover all award entitlements for each pay period, not just on average.
3. Record Keeping Obligations Apply to Salaried Employees
The ruling confirmed that employers must keep detailed records of hours worked, overtime, penalties and allowances, even for salaried employees.
Being “on salary” does not remove record keeping obligations under the Fair Work Regulations.
4. Inadequate Records Shift the Burden of Proof
Where payroll records are incomplete or inadequate, the onus shifts to the employer to disprove underpayment claims.
This significantly increases litigation risk.
The Cost of Getting It Wrong
The consequences of noncompliance are significant.
In the Woolworths matter alone, remediation costs exceeded $100 million, including back pay, interest and superannuation contributions.
Nearly 30,000 employees were affected across Woolworths and other major retailers.
Beyond financial remediation, employers also face:
- Class action exposure
- Regulatory penalties
- Reputational damage
- Employee dissatisfaction
- Ongoing compliance orders
Importantly, employers are required to retain seven years of payroll records, meaning historic noncompliance can surface long after the fact.
Why This Ruling Applies to All Industries
While the case arose in retail, the principles apply broadly to all award covered employees, regardless of industry.
Examples highlighted in the presentation include:
- Healthcare, where shift loadings and penalty rates create high variability between pay periods
- Hospitality, with loaded rates and fluctuating rosters
- Manufacturing, where complex overtime and shift patterns require precise reconciliation
Any industry relying on annualised salaries, loaded rates or offset clauses is now exposed if pay period compliance is not actively monitored.
The Record Keeping WakeUp Call
One of the most underestimated aspects of the ruling is its emphasis on record keeping.
The Court made it clear that:
- Raw roster data or clockin/clockout logs alone are insufficient
- Employers must comply with Fair Work Regulations 3.33 and 3.34
- Records must clearly demonstrate how salary covers award entitlements in each pay period
This applies even where employees are paid an annual salary above the award.
Overtime and “Reasonable Additional Hours”
Many employment contracts rely on “reasonable additional hours” clauses.
The ruling reinforced that such clauses do not automatically absorb overtime entitlements.
Unless overtime and penalties are clearly accounted for in the annualised salary calculation, employers remain exposed to underpayment claims — even where overtime was not expressly directed.
What Remains Unclear
While the ruling provides strong guidance, some uncertainty remains:
- How award based averaging provisions interact with the new pay period compliance standard
- How reconciliation should occur where awards explicitly allow averaging over defined periods
Fair Work has issued guidance but has not provided fully worked examples for every award or industry.
As a result, employers must carefully review their own arrangements and apply conservative, well documented approaches.
Practical Risk Reduction Strategies
Based on the principles emerging from the case, several practical strategies were identified:
- Strictly follow award based averaging clauses where they exist
- Limit any offsetting to the same averaging window permitted by the award
- Consider aligning pay periods with award averaging periods where feasible
- Identify and top-up shortfalls within the same pay period where possible
- Ensure contracts and IFAs clearly reference award provisions and averaging mechanics
Transparency alone is not a defense — but poor transparency can significantly worsen exposure.
Key Takeaways for Employers
The presentation reinforced several critical messages:
- Paying a salary does not remove award coverage
- Each pay period creates a discrete legal obligation
- “Set and forget” payroll models are no longer defensible
- Continuous monitoring and reconciliation are now essential
Waiting for a complaint or audit is a high risk strategy.
Proactive review is far more cost effective than remediation after the fact.
Recommended Actions to Take Now
Employers should urgently consider the following actions:
- Audit salary arrangements to identify annualised structures and historical exposure
- Review employment contracts and remove non-compliant offset or averaging clauses
- Upgrade payroll, rostering and time and attendance systems to enable pay period analysis
- Strengthen record keeping practices to fully meet Fair Work obligations
Pay slip requirements also apply to salaried employees and must clearly reflect annual rates and entitlements.
How Harrisons Can Help
Harrison’s regularly supports employers with:
- Award and pay audits
- BOOT and annualised salary testing
- Employment contract and IFA reviews
- Payroll health checks and remediation planning
In an environment of heightened regulatory scrutiny, ensuring pay period compliance is no longer optional — it is a core governance obligation.
Claire Harrison is the Founder and Managing Director of Harrisons, a flourishing HR consulting business that sprouted in 2009 from Claire’s passionate belief that inspiring leaders and superstar employees are the key success factor to any business. With over 20 years’ experience, Claire has worked as a HR Director of multi-national organisations, as a Non-Executive Board Director, and a small business owner. Claire’s corporate career includes working with companies such as BHP, Westpac, Fonterra and Mayne Nickless.
