Australia’s largest underpayment case: What you need to know now

What’s happening? 

In September 2025, a Federal Court decision put Australia’s largest underpayment case in the spotlight. Woolworths Group and Coles Supermarkets – the nation’s two biggest grocery retailers – now face a combined remediation bill of around $1 billion for having underpaid thousands of salaried staff over several years.

The core issue was that staff were employed under a fixed annual salary, and Coles and Woolworths did not keep track of or pay employee’s entitlements such as overtime and penalties under the General Retail Industry Award 2010 during each separate pay period. Instead, the employers relied on contractual set-off clauses, allowing over-award payment in some periods to offset underpayments in others. However, the Federal Court ruled that even where a set-off clause is used, employees must receive their full Award entitlements for each separate pay period.

Beyond the immediate cost, this ruling has wide-reaching implications for employers across all industries. It challenges a common payroll practice (the use of ‘set-off’ clauses in employment contracts) and reinforces strict record-keeping obligations, prompting businesses to reassess how they manage payroll compliance.

What’s next?  

The Federal Court’s ruling, while pivotal, did not completely conclude the matter. A case management hearing was held on 27 October 2025, focusing on procedural directions and outlining next steps.

The Court confirmed the quantum of compensation and penalties remains unresolved. Parties are required to submit detailed remediation plans and updated liability estimates. A further directions hearing is scheduled for early 2026 to finalise compensation frameworks. 

In the meantime, the case has already prompted industry and regulatory responses. The Fair Work Ombudsman (FWO) under Anna Booth has indicated it will seek court orders for Woolworths and Coles to rectify all underpayments and may pursue penalties for the breaches. We are also seeing calls for the Fair Work Commission (FWC) to review and simplify the relevant award (the General Retail Industry Award). The Australian Retailers Association argues that if highly paid managers now must be treated like hourly award employees for overtime tracking, the system might need reform to restore some flexibility. Whether the FWC amends award provisions or provides new guidance remains to be seen. 

Zooming out, this case reflects a trend of stepped-up payroll compliance enforcement. In May 2025, the FWO released a Payroll Remediation Program guide to help employers proactively identify and fix underpayments. Additionally, new wage theft laws (effective 2025) mean that deliberate or reckless underpayments can attract criminal penalties. The combination of regulatory pressure and landmark cases like this one, is sending a strong message: payroll compliance is now a board-level issue. Employers not only risk hefty back-pay bills and fines, but also reputational damage and loss of employee trust if they get it wrong.

FWO’s impact on worker entitlements 

Overall, the FWO has shown a strong commitment to promoting fair workplace practices and protecting workers. The latest annual report for the 2025 financial year highlights FWO’s major achievements, including: 

• Recovering more than $358 million in unpaid wages for over 249,000 workers, 
• Resolving 18,570 workplace disputes and addressing anonymous reports, with outcomes spanning multiple industries, 
• Publishing 135 media releases, and
• Delivering 24 webinars to emphasise the importance of paying employees correctly. 

These efforts reflect FWO’s proactive approach to compliance and safeguarding employee entitlements. 

Our recommendation 

The Woolworths and Coles ruling underscores that complexity is not an excuse for non-compliance. Employers and payroll professionals should treat this as a wake-up call to strengthen their processes. Our payroll advisory team urges employers to:

• Conduct a sample review: Consider undertaking a high-level sample review to identify potential risks of non-compliance with Award requirements, particularly given the current focus on ensuring Award entitlements are correctly paid on a per-pay-period basis 

• Review contractual pay arrangements: Review any annualised salary or ‘set-off’ clauses. Consider alternative arrangements such as award-based annualised wage agreements 

• Seek legal advice: Consult your employment lawyers on whether an appropriate and robust setoff clause could and should be considered as part of the employment contract, which may allow higher payments made to employees to be used against any potential underpayment that might arise

• Strengthen time-tracking and record keeping: Require actual hours worked to be logged for all staff. Ensure records are accurate and feed directly into payroll calculations 

• Payroll system configuration and testing: Reconfigure payroll software to enforce award rules. Conduct regular reviews and shadow calculations to detect potential underpayments 

• Regular payroll compliance reviews: Treat payroll reviews as routine. Use data analytics and cross-functional reviews to identify risks and remediate early 

• Invest in payroll expertise and training: Upskill payroll teams and engage external advisors where needed. Payroll should be treated as a compliance-critical function 

• Communication and change management: Clearly explain changes to staff. Transparency builds trust and supports a culture of compliance. 

How BDO can help 

BDO offers a structured, expert-led approach to payroll compliance through our four pillar service offerings: 

• Pay against award: From desktop reviews to full reconstructions, we assess whether employees are being paid correctly under the relevant Award or Enterprise Agreement 

• Wage code review: We validate payroll codes and employment tax settings to ensure correct treatment of superannuation, payroll tax, Fringe Benefits Tax (FBT), and worker’s compensation 

• Leave accrual review: We review leave processes to ensure compliance with state-based entitlements and employment type changes 

• Pay process review: Our internal audit team assesses payroll systems, risk controls, and record-keeping practices to identify gaps and recommend improvements. 

Australia’s payroll and industrial relations settings move fast. Rather than checking multiple sources, you can receive timely BDO updates on legislative and FWC developments direct to your inbox—along with practical explainers, implementation checklists and invitations to our employer‑focused webinars. Subscribe to BDO insights and choose the topics most relevant to you so you’re alerted as soon as changes emerge and what they mean for your obligations. 

Note: BDO is not a law firm and does not provide legal advice. All matters of legal interpretation, and all matters requiring legal advice, will be advised and signed off by your legal advisors. We will complete our work based on any legal advice provided. 
 

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Disclaimer

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