The Federal Court of Australia has recently handed down a decision which may significantly effect how employers need to handle set-off clauses in their employment contracts.
The judgment was against Coles and Woolworths and related to a number of matters including:-
- Set-off clauses in employment agreements;
- Record-keeping under the Fair Work Act;
- Agreements between employees and employers under the Award; and
- Various entitlements under the Award including overtime.
Set-off clauses are a common feature in employment contracts which provide employers the ability to “‘set-off’ the annual salaries against any shortfall generated by entitlements under the Award”.
The Court ruled that the set-off clauses were only effective as a means of discharging the monetary entitlement that accrued to each employee under the Award in the payment period adopted by their employer and cannot occur over a longer period (i.e. across pay periods).
The Court also considered the record keeping obligations contained in the Fair Work Act and the decision should serve as a reminder to employers to maintain accurate and detailed records relating to their employees including in relation to the hours worked, the start and finishing times and if a penalty or loading is payable for overtime hours worked. A set-off clause doesn’t exempt employers from record-keeping obligations.
Although this decision may be the subject of an appeal, there are a number of practical steps that employers should be taking now to ensure that they are remaining compliant with the Fair Work Act and their specific Award obligations including:-
- Reviewing their Awards to ensure that their employees are being paid all award entitlements in full each pay period.
- Review and consider re-drafting any set-off clauses.
- Consider whether the applicable award allows for an annualised salary arrangement and consider whether the current clauses and practices need to be updated to ensure complete compliance with those arrangements as contained in the specific Award.
- Review your record keep practices to ensure that detailed and readily accessible records and being kept for your employees which shows their hours worked, which hours constitute overtime and whether a penalty or loading is applicable to certain hours.
- Consider how you are reconciling your employee pays against the Award and investigate whether any payroll processes need to be upgraded or improved to ensure compliance.
- Consider how you are rostering on your employees for overtime to ensure that you are aware of what hours you have your employees working and what their entitlements under the Award are as a result.
