This is Why I Hate Annualised Salaries – and Why You Should Too

If you’ve ever worked with me in HR, you’ve probably heard me say it a hundred times: I hate annualised salaries.

And after the Federal Court’s massive 2025 ruling against Coles and Woolworths, I’ve never been more justified in saying it.

There is a time and place for annualised salary arrangements. However in most cases, employers set and forget, never actually checking that what they’re paying covers the hours and penalties their people are working.

Until now, that might have seemed like a “technicality.” After this case, it’s a legal liability.

What Happened

In Fair Work Ombudsman v Woolworths & Coles [2025] FCA 1092, Justice Perram handed down a judgment that’s sending shockwaves through Australian workplaces.

He ruled that employers can no longer average award entitlements over a year (or even six months). Every payment must now align with the employee’s actual entitlements for that pay period. Whether that’s weekly, fortnightly, or monthly.

In other words:

👉 If someone works more weekends or overtime in one fortnight, you can’t “make it up later.”

👉 You must reconcile and pay correctly for that specific pay cycle.

Woolworths has already paid back over $300 million in underpayments. Coles? Over $7 million — and counting!

This case makes it crystal clear: “Set and forget” salary arrangements are no longer defensible. In reality they never really were - but employers went under the radar. Now that radar is activated.

🚨 What This Means for Employers🚨

If your contracts say things like:

you’re exposed.

From now on, Fair Work will expect that employers:

✅ Reconcile each pay cycle against the relevant Award,

✅ Keep detailed records of hours and entitlements, and

✅ Can show that the salary paid in that period actually covers what’s owed.

Failing to do this isn’t just an admin slip — it’s a breach of the Fair Work Act and can attract civil penalties, back pay, and reputational damage.

Being on a Salary Doesn’t Cancel Out the Award

This is one of the most common and costly mistakes we see. You can’t just say you’re putting someone on a salary and assume the Award no longer applies.

Even if you don’t mention the Award in their contract, if their role is covered by one, it’s covered. Full stop.

This is where employers get into trouble:

It does matter. The salary doesn’t automatically override the employee’s legal entitlements under the Award.

When we assist businesses with onboarding and employment contracts, we review coverage and classification to make sure the correct industrial instrument is applied from day one. That’s how we help you stay compliant and out of the firing line.

Why Tracking Hours Still Matters — Even on a Salary

I’ve been saying this to employers for years: you still need to track time worked, even for salaried employees. And this case demonstrates exactly why.

Too often, businesses assume that because someone is on a salary, there’s no need for timesheets or accurate time records. But under this ruling, if you can’t prove the hours worked, you can’t prove that you’ve paid the correct entitlements for that pay period.

Fair Work expects employers to be able to show, not just say, that the salary paid fully satisfies Award obligations. Without records, the burden of proof flips onto the employer. That means if an employee claims underpayment and you don’t have reliable time data, the law presumes they’re right until you prove otherwise.

Tracking hours isn’t about micromanaging staff. It’s about protecting your business. When implemented well, it’s a simple risk control that prevents costly wage claims, legal exposure, and brand damage.

At People Assured Partners, we help clients put practical systems in place — digital timesheets, payroll audits, and reconciliation tools — so they can confidently demonstrate compliance every single pay cycle.

What You Should Do Now

If you’re using annualised or “all-inclusive” salary arrangements for your managers, team leaders, or administrative staff — this is your wake-up call.

You need to:

1. Review your employment contracts — make sure your set-off clauses are worded lawfully.
2. Check how you’re calculating entitlements — is your pay software aligned with each pay period’s Award rates?
3. Stop averaging over a year — this judgment kills that approach.

Let’s Fix Your Salaries Before Fair Work Does

At People Assured Partners, we’re already helping clients audit their salary structures, fix non-compliant clauses, and create compliant payroll checks for each pay cycle. We have built Award calculators for easy self reconciliations, so you don't need to fear working out each pay period. Don't assume your payroll software has the calcs right either.

Don’t wait for an audit or a claim to find out you’ve been doing it wrong.

If you’ve ever said “they’re on salary, so it’s covered,” — it’s time we talked.

☎️ Call me, call me, call me to discuss your salary arrangements or email hr@peopleassured.com.au

Your peace of mind is worth it — and after this case, it’s not optional anymore.