When everything is going right, payroll compliance can feel like a burden. It’s only when things go wrong that you get a clear perspective on just how important this part of your business is.
The recent Federal Court of Australia judgment (Fair Work Ombudsman v Woolworths Group Limited & Coles Supermarkets Australia Pty Ltd FCA 1092) is a very clear indicator of what can happen when compliance is neglected, even by a major corporation.
Woolworths & Coles: What happened?
This month, the Federal Court ruled against Woolworths and Coles regarding how they managed salaried staff payments. For years, these supermarkets used “all-in” salaries, a way of managing overtime and penalty rates.
Unfortunately, the Court said no to this practice. You have to meet minimum awards for each pay period; you can’t average this out over a period of months. You can’t underpay one week and overpay the next.
The message was clear: payroll compliance rules have to be followed exactly.
Payroll compliance is about precision in every cycle
The Woolworths and Coles cases centred on the misuse of annualised salaries and “set-off” clauses, where the companies tried to balance employee pay over long stretches of time, sometimes up to 26 weeks, instead of making sure staff were properly paid each pay cycle.
The Federal Court was emphatic: you can’t treat an annual salary like a pooled fund to cover award entitlements whenever it suits. Employers must meet award obligations in the pay period they fall due.
For payroll teams, this clarifies that compliance cannot be based on averages or delayed reconciliation but must satisfy Award obligations precisely each pay cycle, making sure employees receive their rightful payments in real time.
Record-keeping is a not negotiable
Another crucial takeaway from the judgment is the strict requirement to keep detailed and accessible payroll records, even for salaried employees. Woolworths and Coles attempted to rely on roster and clocking data as sufficient records, but the court decisively rejected this, stating that raw data alone is inadequate.
The court emphasised that “the obligation to keep detailed employee records under the Fair Work Regulations is not removed by paying an annualised salary.”
Payroll systems must produce records that are “readily accessible” and clearly indicate important details like daily overtime hours and penalty payments.
This ruling highlights the vital role of modern payroll software which is designed to maintain detailed real-time records of all entitlements, ensuring compliance with legislative record-keeping standards.
The burden of proof
The judgement is something of a goldmine for those looking to learn about their own potential payroll risk. One of the other major takeaways is the significant legal consequences of incomplete record-keeping.
Under section 557C of the Fair Work Act 2009 (Cth), when employers have inadequate records, the burden of proof shifts onto the employer to disprove claims of underpayment by employees.
This reversal of the burden of proof places employers at a strategic disadvantage in legal disputes.This elevates record-keeping from an administrative task to a crucial risk management function.
Clear employee agreements are mandatory
And the judgment kept giving lessons to the unfortunate corporations. It also highlighted the importance of having explicit agreements with employees regarding any variations in their work, such as shortening rest breaks. Simply having employees follow certain work patterns does not constitute a valid agreement.
This reinforces the need for businesses to document all variations clearly, an area where integrated payroll and HR systems can streamline compliance.
Benefits of payroll software for compliance
The Woolworths and Coles litigation perfectly illustrates how modern payroll software platforms like Astute Payroll are essential to managing compliance effectively. Benefits include:
- Automated and accurate calculation of Award entitlements, penalties, leave loading and overtime every pay cycle.
- Robust record-keeping that produces detailed, legally compliant, and easily accessible payroll records.
- Real-time alerts and compliance monitoring to detect and resolve issues before they escalate.
- Documentation and audit trails that demonstrate compliance and support dispute resolution.
- Employee agreement management modules to document consent for Award variations.
For businesses seeking to avoid legal risk and build trust with their workforce, investing in compliant payroll systems like Astute Payroll is not just recommended; it’s essential.
Don’t wait for a legal dispute to expose payroll risks. Book a demo and get started today.
Author: Shelley Mackie – Associate Director, Payroll Operations.
References
Fair Work Ombudsman v Woolworths Group Limited; Fair Work Ombudsman v Coles Supermarkets Australia Pty Ltd; Baker v Woolworths Group Limited; Pabalan v Coles Supermarkets Australia Pty Ltd FCA 1092.”
https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2025/2025fca1092
