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ARTICLE · 30 JUNE 2010

Employment Contracts - Validity of Set-Off Clauses Upheld

Norton Rose Fulbright Australia
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Employers can use set-off clauses to pay their employees an all-inclusive rate. The Fair Work Ombudsman has confirmed that it considers set-off clauses as a valid means of making payments.

AustraliaCorporate/Commercial Law
Diana Diaz
Diana Diaz
Stuart Kollmorgen (Formerly With Norton Rose Fulbright Australia)
Stuart Kollmorgen (Formerly With Norton Rose Fulbright Australia)
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Provided that an "all-inclusive wage rate" is higher than the amounts the employee would have received under an award for hours worked, employers can use set-off clauses to pay their employees an all-inclusive rate.

The Fair Work Ombudsman (the Federal watchdog for employees' minimum entitlements) has confirmed that it considers set-off clauses as a valid means of making payments to satisfy minimum monetary award entitlements.

Guidance Note 7 (issued 31 May 2010) confirms that over-award payments can only satisfy monetary award entitlements to which an above-award wages payment is directed. It explains:

"Paying a higher wage rate than the award minimum does not offset penalties or loadings in the award unless it is clear that the parties intended to do so (and in fact, the amount satisfies the entitlements that would otherwise be payable to the employee). If an employer has properly entered into an offsetting arrangement that makes it clear that over-award

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