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 payments are in satisfaction of all penalties, wages etc due under the award, that arrangement can continue to be relied upon to satisfy increases that arise as a result of the commencement of modern awards. In addition, employers can agree with their employees to enter into such an arrangement with respect to future payments."


While awards such as the Hospitality Industry (General) Award 2010 and the Restaurant Industry Award 2010 include clauses which expressly allow an employer pay an annualised salary in satisfaction of certain monetary entitlements (provided that certain conditions are met), the General Retail Industry Award 2010, Fast Food Industry Award 2010 do not have such clauses.

Provided that an all inclusive rate is higher than the amounts the employee would have received under an award for the hours worked, employers covered by awards without annualised salary clauses can use set-off clauses to pay their employees an all-inclusive hourly wage or annual salary in satisfaction of minimum award entitlements such as minimum wages, allowances, leave loading, penalty rates, overtime, and weekend and public holiday rates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.