How Coles Underpaid Workers Up to $1 Billion: Technical Breakdown
The set-off clause is dead as a compliance shortcut. After the 2025 Federal Court ruling, every employer using one must reconcile per pay period.
Coles and Woolworths share more than a duopoly in Australian grocery. They share the same payroll failure. Both supermarket giants used identical set-off clause structures in their employment contracts for salaried managers, and both were found to have underpaid thousands of workers under the General Retail Industry Award 2010.
The Coles case affected approximately 8,750 employees between January 2017 and March 2020. What started as a $20 million self-disclosed problem in 2020 grew to $45 million after further review, and then exploded to a potential $250 million-plus liability after the Federal Court's landmark 2025 ruling.
What Happened
Like Woolworths, Coles employed store managers and department managers on fixed annual salaries above the award minimum. These contracts contained set-off clauses that were supposed to absorb all award entitlements -- overtime, penalty rates, allowances -- into the higher salary.
Timeline
- 2020: Coles self-disclosed that a company-wide review found $20 million in unpaid wages to managers of supermarkets and liquor division over six years
- 2023: Underpayment bill more than doubled to $45 million after further review
- 2024: Fair Work Ombudsman took formal action against Coles
- 2025: Federal Court ruled the set-off clause interpretation was unlawful
- 2025: Coles estimated total remediation at $150-250 million plus $31 million already paid
The Numbers
| Metric | Detail |
|---|---|
| Employees affected | ~8,750 salaried staff |
| Period | January 2017 -- March 2020 |
| Initial self-reported amount | $20 million |
| Revised amount (2023) | $45 million |
| Estimated total liability (post-ruling) | $150-250 million |
| Award involved | General Retail Industry Award 2010 |
The Technical Failure
The liability always grows. Coles' first estimate was $20 million. The final figure is over ten times that. If you suspect a compliance issue, the actual liability is almost certainly larger than your initial estimate.
The Coles failure is structurally identical to Woolworths, but the case history illustrates an important additional lesson: the problem kept getting worse with every review.
The Set-Off Clause Trap (Again)
Coles paid salaried managers a fixed annual salary and did not separately track or pay:
- Hours worked in excess of 38 per week (overtime)
- Work performed on Saturdays, Sundays, or public holidays (penalty rates)
- Applicable allowances under the General Retail Industry Award
The employment contract stated that the salary was compensation for all entitlements. The Federal Court disagreed.
Why the Liability Kept Growing
Round 1 ($20M): Coles' initial internal review used a conservative methodology, looking at obvious cases where managers worked significant overtime. This captured the most egregious underpayments.
Round 2 ($45M): A more thorough review, going back further and examining more employee records, found additional underpayments that the first review missed. The methodology was refined to capture more scenarios.
Round 3 ($150-250M): The Federal Court ruling changed the legal framework entirely. The court held that compliance must be assessed per pay period, not annually or on average. This meant every single fortnight where the award entitlement exceeded the salary paid was an underpayment -- even if the annual salary was well above the annual award minimum.
The escalation pattern -- $20M to $45M to $250M. Each revision used a more accurate methodology, and each revealed a larger problem. This is the hallmark of a systemic compliance failure -- the deeper you look, the worse it gets.
The Per-Period Problem
The General Retail Industry Award 2010 specifies entitlements on a weekly or per-shift basis. Penalty rates apply to specific hours on specific days. Overtime thresholds are daily (after 8-10 hours depending on the roster) and weekly (after 38 hours).
A set-off clause that operates on an annual basis cannot account for the variability of these entitlements. A manager who works no overtime in January but significant overtime in December is compliant on an annual average but non-compliant in December.
The Federal Court held that the per-period approach is the correct one. Every fortnight is a standalone compliance period.
How It Could Have Been Detected Earlier
Catch it in the first pay period. An automated system comparing actual hours to award entitlements would have flagged the first underpayment in the first fortnight, not years later.
The $20M-to-$250M Problem
The most striking aspect of the Coles case is how much the liability grew with each review. This reveals a fundamental weakness in manual or retrospective compliance checking.
What Automated, Real-Time Monitoring Would Have Done
Caught it in the first pay period: An automated system comparing actual hours to award entitlements would have flagged the first underpayment in the first fortnight, not years later.
Prevented the accumulation: Instead of $250 million accumulated over years, the exposure would have been $0 -- each fortnight's shortfall would be identified and remediated in real time.
Eliminated the need for retrospective review: Manual reviews are expensive, slow, and incomplete. Coles' three rounds of review each cost millions in consulting fees and still did not capture the full liability until the court imposed the correct methodology.
Provided defensible compliance records: If Coles had been running per-period reconciliations and documenting compliance, the Fair Work Ombudsman action might never have been necessary.
How AirComply Prevents This
Per-Period Reconciliation Engine
AirComply performs the exact reconciliation the Federal Court now requires: comparing actual award entitlements against actual payments for every employee in every pay period. This is not an annual audit -- it runs every pay cycle.
Roster-Aware Compliance
AirComply integrates with roster and time-and-attendance data to understand not just how many hours an employee worked, but when they worked them. Saturday hours, Sunday hours, public holiday hours, and overtime hours are all classified correctly and the appropriate penalty rates applied.
Proactive Shortfall Alerts
When AirComply detects that a salaried employee's pay does not cover their award entitlements in a given period, it alerts the employer immediately. The employer can make a top-up payment in the same pay cycle, eliminating the underpayment before it becomes a liability.
Historical Compliance Audit
For employers who have been using set-off clauses without per-period reconciliation, AirComply can perform a historical analysis to quantify exposure. This gives employers an accurate picture of their liability -- before the Fair Work Ombudsman discovers it first.
For employers who have been using set-off clauses without per-period reconciliation, perform a historical analysis to quantify exposure now -- before the Fair Work Ombudsman discovers it first.
Key Takeaways
Real-time monitoring is dramatically cheaper than remediation. The cost of monitoring compliance continuously is a tiny fraction of $250 million in back-pay plus legal fees plus reputational damage.
The liability always grows. Coles' first estimate was $20 million. The final figure is over ten times that. If you suspect a compliance issue, the actual liability is almost certainly larger than your initial estimate.
Manual retrospective reviews are insufficient. Three rounds of review, each more thorough than the last, still did not capture the full liability. Only when the court imposed the correct per-period methodology did the true figure emerge.
The set-off clause is dead as a compliance shortcut. After the Woolworths/Coles ruling, every employer using a set-off clause must reconcile per pay period. The era of "pay above award and assume compliance" is over.
Real-time monitoring is dramatically cheaper than remediation. The cost of monitoring compliance continuously is a tiny fraction of $250 million in back-pay, plus legal fees, plus reputational damage.
The bottom line -- Coles and Woolworths between them will pay over $1 billion because they did not perform a simple calculation every fortnight: does this employee's salary cover their award entitlements for this pay period? That calculation takes seconds with the right tool. Without it, the cost is measured in hundreds of millions.
AirComply performs per-period award reconciliation automatically. Check your compliance now.