An employer can make a payment to an employee that simultaneously discharges both an obligation to make a payment to the employee under the employment contract and an obligation to make a payment arising under the terms of an award or enterprise agreement. For example, a contract of employment can expressly provide that the monthly payment of a contractual salary of $5,000 is also to discharge the employer’s obligation to pay the minimum amount due under an applicable award each month (where the salary equals or exceeds that minimum amount).

However, a payment made by an employer to an employee will not discharge an award entitlement to that payment when:

• the payment is made pursuant to a contractual obligation and the parties have agreed this is for a specific purpose that excludes the payment of award entitlements; or
• the payment is designated as being for a purpose other than the satisfaction of award entitlements.

In Fair Work Ombudsman v Woolworths Group (2025), the Federal Court had to determine whether a clause in an employment contract (set-off clause) allowed the employer to pool all its over-award payments made over a 6-month period and then deem that pool to be in satisfaction of the employer’s obligation to make payments under the award for minimum hourly rates, penalties, overtime, allowances and loadings arising in that period.

The Court ruled that the set-off clause could only be effective as a means of discharging the award entitlements that accrued each fortnight, being the payment period adopted by the employer. Moreover, the Court determined that it was only possible for the employer to discharge its obligation to pay award entitlements falling due in a particular pay period by actually making a payment in the same pay period.

The Court also determined that the employer had not met its record-keeping obligations under the Fair Work Act 2009 (Cth) and the Fair Work Regulations 2009 (Cth). These required records to be kept of the number of overtime hours worked by the employee during each day, or when the employee started and finished working overtime hours if a penalty rate or loading was payable for overtime hours actually worked. The Court ruled the contractual set-off clauses did not exempt the employer of these record-keeping obligations. It also ruled that roster records and clocking data are insufficient to satisfy these record-keeping obligations.

The decision is expected to be the subject of an appeal.

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