Yes – pastoral and farming employers can still pay staff an annualised salary instead of an hourly wage. The Pastoral Award 2020 has its own rules that allow this, known as an annualised wage arrangement.
But a recent Federal Court decision against Woolworths and Coles has made it clear that these arrangements only work if they are set up and managed correctly. This article explains what changed, what pastoral employers need to check, and the practical steps to stay compliant.
Our Farming & Agribusiness team discuss this important topic.
The case concerned the General Retail Industry Award 2010 and the “set-off clauses” in Woolworths’ and Coles’ employment contracts. These clauses were designed to let the employer pay a single all-inclusive salary instead of separate award entitlements such as overtime, penalty rates and allowances, pooled over an extended period. On the employers’ case, so long as the total salary paid over that whole period exceeded what the award required, no shortfall arose even if a particular week or fortnight fell short.
The Fair Work Ombudsman (FWO) alleged that Woolworths and Coles had underpaid thousands of salaried store managers.
While many employees earned more than the award over the course of a year, the FWO argued that the employers had not ensured employees received at least their minimum award entitlement in each individual pay period. The court agreed with this view.
Justice Perram held that a contractual set-off clause cannot be used to carry over an overpayment from one pay period to cover an underpayment in another. In other words, employers cannot “bank” excess salary paid during quieter periods and rely on it to offset overtime or penalty rates worked later.
The Court also found that both retailers had failed to keep adequate records of overtime and penalty-rate hours, and that rosters and clock-in/clock-out data were not enough to satisfy their record-keeping obligations under the Fair Work Regulations 2009 (Cth). That failure triggered results in the responsibility to account for timesheets falling to the employers, not the underpaid employees, to prove there had been no shortfall. Combined with the finding on set-off clauses, this left Woolworths and Coles with very little room to defend the claims, and remediation payments already running into hundreds of millions of dollars.
It would be easy to read the Woolworths and Coles decision as ruling out any form of averaging altogether. This approach is not entirely correct, and this distinction matters for pastoral employers.
The Pastoral Award 2020 is the award that applies in the industry, and by contrast to the Award in the Woolworths and Coles case, contains its own dedicated annualised wage arrangement provision. Where an award expressly permits an annualised wage arrangement, and the employer follows the award’s own rules for that arrangement, averaging entitlements over a 12-month period still applies. The key is that the averaging must be allowed by the award itself, it cannot be created by a standalone contractual set-off clause layered on top of a pay period the award does not recognise.
This is a meaningful distinction, but it is not a loophole. The very reason clause 17 of the Pastoral award survives after this decision is that it comes with its own compliance mechanisms which are written agreement, ongoing record-keeping, and an annual reconciliation. Take away any one of those elements and a pastoral employer is, in substance, relying on an informal set-off that the award does not actually authorize exposing themselves to the same liability as Woolworths and Coles.
The Better Off Overall Test (BOOT) is a familiar concept to most employers, but it applies formally in a narrower context than many assume. Strictly speaking, an annualised wage arrangement under clause 17 of the Pastoral Award does not invoke the BOOT by that name.
What clause 17 does is build in its own, closely analogous safeguard. Clause 17.2 provides that the annualised wage must be no less than the amount the employee would have received under the award for the work actually performed over the relevant year and something the employer must actually test through the 12-month reconciliation described above. In substance, it operates like a BOOT comparison, but it is assessed annually against real hours worked rather than approved in advance against a hypothetical roster.
There is a further safeguard worth noting. Clause 17.1(b) requires the written agreement to specify outer limits the maximum ordinary hours attracting a penalty rate and the maximum overtime hours the employee may be required to work in a pay period or roster cycle. If an employee works beyond either outer limit in a given pay period, those additional hours fall outside the annualised wage altogether and must be paid separately under the award. This is a meaningful point for pastoral employers: a shearing or harvest period that regularly pushes an employee beyond the agreed outer limits may generate a separate, immediate payment obligation.
For pastoral employers, the practical takeaway is not to treat “we pay well above award” as a substitute for the clause 17.2 comparison, and not to assume that a generous headline salary automatically satisfies either the BOOT or the award’s own no-disadvantage test. Both are exercises that have to be performed against actual hours worked.
Consider a station hand on an annualised salary of $75,000 offered on the basis that this comfortably exceeds their award entitlements averaged across the year. During a six-week shearing period, their overtime and weekend hours would, calculated under the award, amount to significantly more than their salary for that period. Outside shearing, their hours are closer to standard, and the salary comfortably covers their entitlements.
Applying Woolworths and Coles logic to an ordinary set-off clause, an employer may not point to the shearing-period shortfall and say it was made up by the surplus earned in quieter months, because a set-off clause operates pay period by pay period. Under the Pastoral award, the employer can average across the full 12 months only if the arrangement was properly documented from the outset, the shearing-period hours were recorded and signed off, and the employer carries out the reconciliation at the 12-month mark and pays out any shortfall it reveals.
Non-compliance can expose employers to more than simply back-paying wages.
Depending on the circumstances, employers may face:
The Woolworths decision provides a useful opportunity to review existing employment arrangements.
Employers should consider:
Businesses should also remember that salary arrangements that worked several years ago may no longer reflect current award rates or working patterns.
Seasonal peaks are where pastoral employers are most exposed. A flat annual salary that comfortably covers a quiet autumn may fall well short during shearing or harvest, when overtime and penalty hours spike. If those hours are not being tracked, there is no reliable way to know until an audit or a dispute forces the question whether the annualised wage has actually kept pace with the award.
The Woolworths and Coles decision also confirms that rosters and informal time records, without more, will not be treated as adequate record-keeping. For pastoral businesses that have historically relied on verbal arrangements or a general sense of “how the season went,” this is worth taking seriously. Contemporaneous, signed records of actual hours worked are now central to defending the validity of any annualised wage arrangement, and the reverse onus of proof means that gaps in record-keeping will generally be resolved against the employer, not in its favour.
There is also a timing risk worth flagging. The 12-month reconciliation must be carried out at least annually, with any shortfall paid within 14 days of it being identified. An employer who has not been keeping records throughout the year will struggle to perform this reconciliation accurately when the time comes.
The Woolworths and Coles decision is a good prompt to review existing pay arrangements. Employers should check:
Salary arrangements that were compliant several years ago may no longer reflect current award rates or working patterns.
For businesses in remote areas, keeping accurate records can be difficult without reliable network access. Time-tracking platforms such as Traqq or SkyTrust offer offline recording options and can help bridge this gap.
If your business pays salaried employees under the Pastoral Award, now is a good time to review your annualised wage arrangements or to put a compliant one in place if you do not already have one. Given the stakes involved, and the fact that the Woolworths and Coles decision is likely to prompt closer scrutiny of annualised salary arrangements across all industries, this is squarely a matter for specialist employment law advice tailored to your business, rather than generic guidance.