Annualised Salaries: The Federal Court Decision Every Small Business Needs to Know About
If you employ staff on an annualised salary or use “all-in” pay arrangements, a recent Federal Court ruling could have major implications for how you manage payroll. As a trusted Gold Coast bookkeeper working with small businesses every day, we’re here to break down what’s changed — and what you need to do now to stay compliant.
What Happened?
On 5 September 2025, the Federal Court handed down a significant decision in Fair Work Ombudsman v Woolworths & Coles that reshapes how annualised salaries and set-off clauses can be used in Australia.
For years, many employers assumed that paying a generous all-inclusive salary — one that bundled base pay, overtime, penalty rates, and allowances — was enough to meet their obligations overall. But this ruling makes it clear: that approach is no longer safe.
Key Change: No More “Pooling” Payments
The biggest shift is around how set-off clauses operate. The Court ruled that you cannot use overpayments from one pay period to offset underpayments in another.
In simple terms:
If an employee was paid more than their minimum entitlements in Week 1, you cannot use that to cover a shortfall in Week 2.
Every pay period must individually meet award or agreement requirements.
This means payroll compliance isn’t just about the total annual figure anymore — it’s about accuracy every single pay cycle.
Annualised Salaries Don’t Remove Record-Keeping Obligations
Even if your employees are on an annualised or “all-in” salary, you’re still required to:
Maintain detailed records of hours worked, overtime, penalty rates, allowances, and unpaid breaks.
Regularly check that the salary actually covers what the employee would have earned under their award each pay period.
Without this evidence, the burden of proof in any underpayment dispute may shift onto you — and that’s a risk no small business wants to face.
Why This Matters for Small Businesses
This ruling is a wake-up call for small business owners who rely on simplified payroll practices. If your processes don’t align with the new legal standard, you could face:
Underpayment claims (even if employees are paid “above award” overall)
Breaches of the Fair Work Act
Penalties and legal costs
For businesses operating without internal HR or legal teams, partnering with an experienced bookkeeping service on the Gold Coast can make all the difference. It’s now more important than ever to ensure your payroll systems and records stand up to scrutiny.
How to Protect Your Business
Here’s what every employer should be doing right now:
1. Review employment contracts.
Check any set-off or annualised salary clauses. If they imply offsets across multiple pay periods, they may no longer be valid.
2. Reconcile pay per pay cycle.
Instead of comparing salaries annually or quarterly, review entitlements against payments every pay period.
3. Keep detailed records.
Track hours, overtime, allowances, and breaks clearly and consistently — even for salaried staff.
4. Audit past payroll data.
Check for potential underpayments using the new interpretation. Correcting issues now can prevent bigger problems later.
5. Get expert help.
A qualified Gold Coast bookkeeper can help you put the right systems in place, so your payroll and records meet evolving compliance standards.
How Masttocs Can Help
At Masttocs Bookkeeping Services, we work closely with small businesses to stay ahead of complex payroll and employment law changes. From accurate record-keeping to per-pay-period reconciliation, we make sure your books back you up — and your business stays protected.
Legislation is changing fast, and compliance is no longer something you can set and forget. With the right systems (and the right bookkeeper) in place, you can focus on running your business — confidently and compliantly.
