Ok, Ok maybe it is going a bit too far.
But this is a question that needs to be asked and answered for every Board, Executive and HR team.
Do we have payroll under control?
Because of recent cases (which may be appealed) involving Coles and Woolworths, this is a question that should at least be up there as one of the big workplace issues next to AI, Recruitment, Retention, Change Management, Intergenerational Staff and Remote Work and Flexible Working Arrangements.
Some Background
On 16 April 2025, the Fair Work Ombudsman (FWO) published its Payroll Remediation Program Guide (Guide), setting out a framework for employers to identify, remedy and prevent payroll underpayments. The Guide emphasises a structured, transparent, and employee-centric approach to remediation.
In September 2025, the Federal Court in FWO v Woolworths Group Limited; FWO v Coles Supermarkets Australia Pty Ltd [2025] FCA 1092 handed down a landmark ruling in proceedings involving Coles and Woolworths that has profound implications for how employers design and implement remediation programs. The ruling sharpens many of the principles embedded in the Guide, especially around set-off arrangements, record-keeping and pay-period compliance.
Below is a refreshed overview of how employers should approach payroll remediation, integrating commentary on the Coles/Woolworths case.
Six (6) elements of an effective Payroll Remediation Program (PRP) with insights from Coles/Woolworths
1. Designing your PRP
- Employers should first identify possible compliance shortfalls and establish the temporal and operational boundaries of their review. The Guide mandates that the review period should go back as far as the non-compliance can be reliably traced, with the six-year statutory limitation period treated as a floor, not a ceiling. If a remediation is capped at six (6) years, employers must be able to justify the limitation to the regulator.
- Critically, the Coles/Woolworths judgment reinforces that retrospective liabilities can be significant. Because their internal remediation programs had underestimated what was owed, and because the Court has rejected some of their contractual defences, employers are under greater pressure to conduct comprehensive and thorough reviews.
- Early consultation with employees, unions, and relevant third parties about the methodology and scope of remediation remains a key expectation of the FWO.
2. Methodology and set-off / offsetting issues
This is one of the most consequential areas where the Coles/Woolworths decision dovetails with the Guide’s expectations.
- The FWO has long held that surplus payments in one period cannot justify underpayments in another; each pay period must independently comply. The Coles/Woolworths ruling now gives that principle judicial backing.
- Justice Perram held that the contractual set-off (or offset) clauses used by Coles and Woolworths which sought to pool excess salary payments over a 26-week period to offset shortfalls in other pay cycles were not valid to discharge Award entitlements across pay periods. In short, the Court held that set-off clauses can only apply within the same pay period, not between different pay periods.
- The Court described pooling across periods as an “accounting abstraction” that does not satisfy the statutory requirement to pay entitlements in full in the correct pay period.
- Employers relying on annualised salaries or “all-in” contracts must now ensure that their remuneration structures and any embedded offset clauses are designed so that each pay cycle fully meets Award or agreement entitlements, rather than depending on long-term averaging.
- The decision also underlines that employers must be able to explain and justify the methodology adopted, including the data sources, classification logic, and reconciliation protocols, and to show that their methodology complies with the FWO’s position on offsetting.
In practical terms, after Coles/Woolworths, a remediation program that uses cross-period set-offs as a primary defence is much more exposed. Keep in mind this decision might be appealed in the future.
3. Communications with employees
The importance of transparency becomes heightened in light of the Coles/Woolworths case:
- Employees (current and former) will likely expect clear explanations of how remediation is calculated, especially around interest, reconciliation, and the treatment of offsets.
- Employers should proactively engage with employees (and their representatives) to explain how the remediation methodology aligns (or diverges) with recent legal precedents.
- Given the high publicity and stakes of the Coles/Woolworths case, poor or opaque communications may exacerbate reputational risk.
4. Former employees and locating owed payments
- The obligation to take reasonable steps to locate former employees remains. Given the scale of potential liabilities exposed by the Coles/Woolworths ruling, the effort to track down former staff becomes even more critical.
- If former employees cannot be located despite reasonable efforts, unclaimed funds generally must go to the Commonwealth, but this should be well documented.
5. Corrective measures (interim and permanent)
- Employers must promptly deploy interim measures to stop further non-compliance (for instance, more frequent reconciliations, checks, and audits).
- Post-Coles/Woolworths, these corrective measures cannot be superficial; payroll systems, templates, and operational controls likely require deeper redesign to ensure compliance on a pay cycle by pay cycle basis.
- Payroll software should not be relied upon in its entirety without due diligence and in particular proper legal advice should be obtained on problem areas such as modern award coverage.
6. Future compliance and systemic safeguards
The Coles/Woolworths decision adds impetus to the Guide’s suggestions:
- Internal audits, external reviews, and enhanced payroll compliance systems are now not just optional good practice but essential risk mitigation.
- On-going board-level oversight of payroll compliance is critical to avoid historic underpayment liabilities.
- Employers should revisit whether salaried / annualised pay arrangements remain appropriate under the new legal landscape.
- Introducing dedicated compliance roles or teams, and elevating “payroll integrity” into strategic risk discussions, can materially reduce exposure.
Final reflections
The FWO’s Guide sets a solid baseline for how to conduct payroll remediation. But the Coles/Woolworths ruling elevates the risk profile considerably and demands heightened rigor, transparency, and discipline. Employers can no longer rely on long-term averaging or contractual set-off clauses as protective buffers. Each pay period must stand on its own for compliance purposes, and remediation programs must be robust enough to survive regulatory and legal scrutiny.
This decision may be appealed in the future so watch this space……
Our Employment Lawyers at South Geldard Lawyers have essential expertise in advising on payroll questions, especially around coverage and remediation.
Feel free to reach out on 07 4936 9100 or via email to Jonathan Mamaril, Director at jmamaril@southgeldard.com.au. All Employers receive an obligation-free consultation.
