Federal Court ruling puts professional services pay systems on notice

A landmark Federal Court ruling against Woolworths Group and Coles Supermarkets should prompt professional and financial services employers to check whether their own salaried staff – including human resources (HR) professionals, analysts and administrative employees – are covered by an award, according to a Clyde & Co employment law partner.

The decision, handed down by Justice Michael Perram on 5 September 2025, found that Woolworths and Coles could not use broad annualised salary arrangements to offset underpayments in one pay period against overpayments in another. Employers must instead meet every award entitlement – including overtime, penalty rates and allowances – within each individual pay period.

"This is not new legislation, but there was a lack of awareness of it until the recent judgements against Coles and Woolworths, and we are likely to see more off the back of these cases," said Sarah Wood, employment law partner at global law firm Clyde & Co.

A retail story with a much wider reach

Australia's wage underpayment debate has largely centred on retail, hospitality and construction. A Senate Education and Employment References Committee inquiry into the wage theft framework, which reported on 18 June 2026, found that the complexity of the modern award system – not deliberate misconduct – is the main driver of underpayment across the workforce, including at large, well-resourced employers.

Wood said that framing risks obscuring exposure in sectors that do not see themselves as award-dependent, including professional and financial services. Employees such as HR professionals, analysts and administrative staff can fall under the Banking, Finance and Insurance (BFI) Award, and firms that assume their salaried staff sit outside the award system may be unknowingly breaching their obligations.

"Employers are under increased scrutiny to ensure salaried employees receive at least what they would have earned under the applicable award per pay period, including overtime, penalty rates and allowances," Wood said. "Even if wages are paid above award, businesses must have rigorous systems in place to capture time accurately and keep records, or they could be in breach of the award."

Speaking on the structural drivers of underpayment more broadly, Wood pointed to the Woolworths decision as a genuine wake-up call. "I do sense that maybe there's a lot of larger corporates that are possibly unaware that there's even modern awards that apply to their business, let alone what particular jobs within the business are covered by the award and then what they need to do to actually comply," she said.

Where the compliance gaps sit

Wood said the starting point is identifying which awards apply and which roles fall under them, then building systems to prove compliance – reviewing applicable awards, mapping job classifications against them, and becoming intimately familiar with the entitlements each one provides.

Record-keeping, Wood said, is where many businesses – large and small – fall short. "Having a system in place that accurately records staff working hours sounds easy, but not every business will actually have that system in place," she said. Monitoring that system and retaining records of hours worked, overtime and allowances is a prerequisite to auditing wages – "which is the crux of the whole thing."

Larger organisations are not necessarily better placed than smaller ones, Wood said. Bigger employers may have more resources, but often carry multiple awards and a wider spread of job types, multiplying the compliance burden. Smaller businesses may face fewer awards and classifications, even without dedicated payroll or legal support.

The Fair Work Ombudsman has publicly flagged universities, large corporates, building and construction, agriculture, aged care, and hospitality – including restaurants, cafes and fast food – as priority sectors, Wood said. In retail and hospitality specifically, she pointed to a high proportion of vulnerable, younger and migrant workers on irregular hours as a factor that triggers award entitlements that employers may not anticipate.

Intent, not error, is now the legal dividing line

Since 1 January 2025, intentionally underpaying an employee has been a criminal offence under the Fair Work Act 2009, introduced through the Fair Work Legislation Amendment (Closing Loopholes) Act.

Wood said the legal test turns on knowledge and intent, not the size of the error. "There's that element of intentionality and recklessness," she said – deliberate non-compliance despite knowing the legal obligation, as distinct from an honest, unintentional breach in a genuinely complex system.

Wood said most underpayment cases she sees are unintentional, a view consistent with the Senate committee's finding that complexity, not wilful conduct, drives most breaches. Even so, she said the reputational and legal fallout from the Woolworths and Coles decision has sharpened employer attention.

"I think decisions like the Woolworths decision have had a real impact on businesses' awareness of what compliance requires," Wood said, adding that tougher penalties under the new laws are reinforcing that shift.

For HR leaders, Wood's advice is not to assume a business – or a role – sits outside the award system. That means confirming which awards cover the business, checking whether existing job classifications are accurate, and ensuring time-recording and wage-auditing systems can withstand scrutiny from a regulator.