The recent Federal Court ruling against Coles and Woolworths has highlighted that even Australia’s largest and most sophisticated employers can fall short on compliance.
In September 2025, the Court found both supermarket giants had underpaid thousands of salaried managers by failing to maintain adequate records and by relying on “set-off” clauses to balance pay over multiple periods.
The landmark decision could see their total remediation costs exceed $1 billion, with Woolworths alone estimating up to $750 million in liabilities.
For smaller businesses, this case serves as a warning. Payroll errors don’t just happen in large, complex organisations – they occur when systems, records and oversight aren’t strong enough to be compliant with Fair Work laws.
What went wrong?
1. Poor record-keeping
The Court found both Coles and Woolworths lacked sufficient time and pay records to verify whether managers were receiving their correct entitlements. Without these records, employers can’t demonstrate that staff were paid correctly, leaving them exposed to regulatory action.
Vertruen recently highlighted the risks associated with poor record keeping, and what your obligations are as a business owner or HR manager. You can read that here.
2. Reliance on “set-off” arrangements
Both companies argued that annual salaries were meant to cover all entitlements, including overtime and penalties. The Court rejected this, confirming that wages and entitlements must be calculated accurately for each pay period – not ‘averaged’ over time.
3. Weak internal verification
Despite sophisticated payroll systems, the companies failed to regularly check how salaries compared to award entitlements. The absence of scheduled audits meant small discrepancies built over the years, eventually resulting in large-scale underpayments.
Key lessons for all employers
The Coles and Woolworths rulings offer clear lessons for businesses of every size.
1. Keep detailed records for at least seven years
Under the Fair Work Act, employers must maintain clear records of hours worked, overtime, allowances, superannuation and leave. Inadequate documentation is one of the fastest ways to lose a compliance dispute. Records should be securely stored, updated if an error is spotted in an audit, and easily retrievable for at least seven years.
2. Conduct annual payroll compliance reviews
A yearly payroll audit with a compliance firm like Vertruen is one of the simplest ways to protect your business. Reviews should compare actual pay against award rates, verify overtime and allowances, and confirm superannuation and leave balances.
3. Pay by pay period, not in bulk
Entitlements must be assessed for each pay period. Employers cannot rely on annual salaries to “even out” over time. Each pay run should be independently verifiable and reflect the correct award conditions for that period.
4. Invest in systems that make compliance easier
Modern payroll software can help automate calculations, track entitlements, and create audit trails. However, automation only works if data entry and award interpretation are accurate. Human oversight and regular audits remain critical.
Payroll compliance is not just about avoiding fines – it’s about doing right by your people and your business. With regular reviews, solid record-keeping and expert support from Vertruen, smaller businesses can stay ahead of compliance risks and maintain trust where it matters most.
By offering practical, ongoing support, we can help businesses to meet their obligations with confidence. To learn more about our continuous compliance services, contact us today.
