You will hear us say it a lot here at Focus HR, employers should always make sure that they have contracts of employment in place. These contracts should not only tell the employee what the terms and conditions of the employment relationship are, but should also be built to support the business and its goals, and be designed to protect them, as much as possible, including from the sting of potential unpaid wage claims.
Set off clauses, put simply, are a clause in the contract which says that what we (the employer) pay you (the employee) can be set off against what we potentially owe you (i.e. Award entitlements). It’s slightly more complex than that in terms of what can be included, but you get the gist.
A valuable, but frequently absent inclusion in a good contract.
Whilst set off clauses in contracts are a very useful tool when looking at unpaid wages claims, we have all too often seen the uncomfortable aftermath that can unfold when they are not well drafted or not in place at all.
The recent Federal Court decision in Australasian Meat Industry Employees Union v Dick Stone Pty Ltd  FCA 512 has some important lessons for employers here, including that:
- Above awards payments contained in an unspecified “blended rate” cannot be set off against unpaid entitlements under an Award where no set off clause is in place; and
- Employers can’t change their mind down the track and characterise unspecified above award payments as being payments for entitlements under an Award if no such terms or agreement is in place for same.
In this case, despite paying the employee a loaded up, above award rate, the employer was still required to pay unpaid overtime to the employee because there was no evidence that proved that the overtime was already included in his hourly rate. The built-up hourly rate was therefore treated as the employee’s base rate of pay. This meant the employer was paying overtime calculated using the higher base hourly rate – so effectively being hit twice.
This is an important reminder to employers to have well-prepared set off clauses in place, in order to potentially reduce amounts payable under an unpaid wage claim and to ensure that clauses are fit for purpose. Get in touch with our team at Focus HR to learn more about how we can help protect your business.