2025 saw significant developments in the HR and payroll compliance space.
As 2026 begins, the following critical areas are important for employers to be across to ensure ongoing compliance.
Set-Off
On 5 September 2025, the Federal Court of Australia handed down its long-awaited decision in respect of the Fair Work Ombudsman’s (“FWO”) prosecution (and related class actions) against Woolworths and Coles.
The Court determined that employers are only permitted to “set-off” over-award salary payments against obligations arising under an award within the same pay period. This means that – regardless of employers paying an annual salary or flat all-inclusive hourly rate – they must ensure compliance with all entitlements on a pay period basis. Overpayments in one pay period cannot be “pooled” and off-set against underpayments in another pay period.
The Court also made findings regarding record-keeping obligations, including that employers are not relieved from such obligations because they make all-inclusive payments to employees. Employers remain obliged to retain records relating to each employee’s entitlement to be paid any loading, penalty rate or other monetary allowance.
Key Takeaways:
As a result of the Federal Court decision, employers must review salaried employees’ remuneration arrangements and consider whether the salary is sufficient to cover all entitlements on a strict pay period basis.
Employers should review set-off clauses in employment contracts and ensure the drafting is consistent with this decision.
Employers should consider how employment and wage records are being kept and retained, and ensure their practices are compliant with the record-keeping requirements in the Fair Work Act 2009 (Cth) (“Act”).
Payroll Compliance
The FWO reported that it recovered $358 million in unpaid wages and entitlements in the 2024-2025 financial year. This means that the FWO has been involved in the back-payment of more than $2 billion over the last five years. The FWO also secured the highest penalty ever against one employer, being $15.3 million.
In the 2025-2026 financial year, the FWO will continue its targeted compliance efforts in its priority areas, which include aged care and disability support services, large corporates, building and construction, agriculture, fast food, restaurants and cafes, and universities.
The FWO has frequently noted that underpayments tend to stem from a failure to prioritise workplace relations compliance into corporate governance frameworks and a lack of investment in payroll systems, expertise and pay reviews.
Key Takeaways:
Employers should consider conducting a review of payroll compliance on a sample basis, particularly if more than six – 12 months have passed since their last review.
Employers, particularly those in priority areas, should review their pay rules and ensure that their payroll interpretations/configurations remain current.
The FWO’s commentary is clear – payroll compliance needs to be a key and distinct governance consideration within all organisations.
Our payroll compliance solution, RemCheck, can assist with payroll compliance reviews, from a sample review to a full end-to-end review.
Our team can also review pay rules to confirm that they are legally correct and current, and provide training that is tailored to your organisation’s needs.
Redundancy
Two recent decisions – Helensburgh Coal Pty Ltd v Bartley [2025] HCA 29 (“Helensburgh Coal”) and the penalty decision of Transport Workers’ Union of Australia v Qantas Airways Limited (Penalty) [2025] FCA 971 (“Qantas“) – have underlined that redundancy processes will face sharper scrutiny in 2026 and beyond.
The High Court in Helensburgh Coal has fundamentally reshaped how “genuine redundancy” is assessed under section 389 of the Act. The Fair Work Commission (“FWC”) can now look beyond existing vacancies or an employer’s current workforce structure, and ask whether redeployment could reasonably have been achieved, including by:
reallocating or insourcing contractor work;
reshaping or reorganising duties; or
creating roles where work could have been made available.
Employers must actively examine contractor arrangements, upcoming organisational changes and any realistic alternatives before concluding that redeployment is not viable.
Consultation and documentation remain critical. Employers must clearly explain operational changes, engage with employee feedback and record why redeployment options were not feasible. Poor processes alone may result in a finding that a redundancy was not genuine.
The Qantas penalty decision illustrates how costly missteps can be in terms of significant penalties, compensation liabilities, executive-level scrutiny and reputational harm.
Key Takeaways:
Going into 2026, employers should:
Expect that the FWC will ask whether the employer could have reshaped the workforce or reduced contractor use as part of its redeployment obligations, including by reviewing labour-hire arrangements early.
Keep detailed records of all alternatives considered.
Ensure consultation is genuine and not a box-ticking exercise.
Flexible Working
The recent decisions in Karlene Chandler v Westpac Banking Corporation [2025] FWC 3115 (“Westpac”) and Hutchinson v Cleanco Queensland Ltd [2025] FWC 2887 (“Cleanco”) highlight that the FWC will strictly enforce procedural and evidentiary obligations when dealing with flexible work arrangement requests under section 65 of the Act.
In the Westpac matter, the FWC upheld an employee’s right to work remotely full-time because Westpac failed to observe the mandatory steps under section 65A, relied on generalisations about collaboration, and did not consider the personal impact on the employee.
The FWC confirmed that Westpac’s policies requiring office attendance were not enough – responses to applications for flexible working must be timely, sufficiently detailed and evidence-based.
By contrast, in the Cleanco matter, the FWC rejected a flexible work request where the arrangement was driven by lifestyle choice rather than genuine caring responsibilities. The National Employment Standards (“NES”) does not include a general work–life balance entitlement, and employers are not required to accommodate preferences based on where an employee chooses to live.
Even so, demonstrating a structured assessment and reasonable business grounds for refusal remains crucial.
Key Takeaways:
Going forward, employers should assume in considering flexible working arrangements the FWC will carefully examine:
whether procedural steps were followed precisely;
whether genuine dialogue occurred;
what evidence supports the claimed business impacts; and
whether the consequences for the subject employee were properly weighed.
While employers must meaningfully consider eligible requests, they are not required to restructure work indefinitely to support personal lifestyle choices, especially where safety or operational integrity may be compromised
Payday Super
On 4 November 2025, new legislation passed requiring that from 1 July 2026, employers must pay superannuation contributions to each employee’s superannuation funds at the same time they pay salary or wages. Contributions need to reach employee superannuation fund accounts within seven business days of payday. Employers that fail to meet this requirement will be liable for the superannuation guarantee charge.
Key Takeaways:
This represents a significant change to how employers contribute to employees’ superannuation funds. In order to be prepared for 1 July 2026, employers should review their payroll systems and superannuation processes to ensure readiness to make superannuation contributions more frequently.
Award Compliance
In 2025, the FWC made changes to several awards as part of its Aged Care Work Value Case – a response to the historical undervaluation of aged care workers. The most recent pay rate increases took effect from 1 October 2025.
The changes affect the Aged Care Award 2010 (“ACA”), Social, Community, Home Care and Disability Services Award 2010 (“SCHADS Award”) and the Nurses Award 2020, and include increases to minimum rates of pay, as well as the inclusion of direct care workers in the ACA and a new stream of aged care home care workers in the SCHADS Award.
Further, as part of the FWC’s gender undervaluation review of priority awards, major changes to the classification structure under the SCHADS Award are currently before the FWC.
Key Takeaways:
If you are an employer (particularly in the aged care or social services sector), it is a timely reminder to review the award(s) applicable to your organisation and ensure any amendments made to the awards have been incorporated into your pay rules.
If your organisation has not undertaken an assessment of classifications and pay points under an applicable award in the last six – 12 months, now is a good time to do so to ensure correct classification levels and pay points are being applied.
FWC Applications
In the 2024/2025 financial year, the FWC received over 44,000 lodgments (mainly general protections and unfair dismissal claims), representing a 24% increase as against the five-year average.
On 12 November 2025, the FWC announced significant reforms with immediate effect to how it manages general protections applications in order to respond to the significant increase in claims.
The changes include the requirement to provide the FWC more comprehensive information in application and response forms. Parties are now also required to make submissions requesting permission to be represented by a lawyer or paid agent within these forms, and such requests will be determined by the FWC prior to conciliation (as opposed to this decision being made at the beginning of the conference). Further reforms to other FWC applications have also been slated for 2026.
Key Takeaways:
Moving forward, employers served with a general protections application should be aware that their response will require more information than in the past – including detailed reasoning behind any jurisdictional objection.
Cowell Clarke is pleased to assist employers with the matters outlined above. Please contact our Employment & Workplace Relations Team for further information.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.