HR just emailed your offer. The role is good, the money's good, and the contract says your salary is "inclusive of all overtime, penalty rates and allowances under any applicable Modern Award." Someone in the interview mentioned the team "usually pulls 50-hour weeks during quarter close." You're about to sign by Friday.

Hold on.

That clause has a name. It's called an annualised salary with a set-off clause, and in Australia it's one of the most common wage-theft mechanisms in employment contracts right now. Not because employers are evil. Because almost nobody — including the person who drafted your contract — realises the law doesn't actually let it work the way most contracts say it does.

Here's what you need to know before you sign.

What an annualised salary actually means

In Australia, employment contracts come in two flavours.

The first is straight time: you get paid an hourly rate (or weekly equivalent) plus extras when they apply — overtime, penalty rates for weekends or late nights, allowances for travel or on-call. If your role is covered by a Modern Award (and most still are, even white-collar ones), the Award sets those minimums.

The second is an annualised salary: your employer pays you a flat annual figure that's meant to absorb all of those extras. The deal — on paper — is that you get a higher base in exchange for the employer not having to track every hour, every late shift, every public holiday.

That's where the set-off clause comes in. It's the contract clause that says your annual salary is paid "in lieu of, and offsets, any entitlements you would otherwise have under the Award." In other words: the salary is the deal, and everything else is rolled into it.

Sounds reasonable. In practice, it's where things go very sideways.

The trap most people miss

Most people read "salary covers everything" and assume it means everything across the year averages out. Quiet month here, brutal month there, all comes out in the wash. That's how most managers think it works. That's how most contracts are drafted.

That's not how the law works.

The Fair Work Act requires employers to pay you the full amount you're owed in each pay period — not across the year. So if you're paid fortnightly, your fortnightly pay has to cover everything you would have earned under the Award in that fortnight. Overtime, penalties, allowances — the lot. You can't "bank" the quiet weeks against the busy ones.

In plain English: your employer can't say "we underpaid you in March but overpaid you in June, so we're even." That's not a thing.

The Federal Court has now made that crystal clear. Set-off clauses operate within a single pay period only. If the salary you receive in any given fortnight doesn't cover what you would have earned under the Award for the hours you actually worked that fortnight — that's underpayment. It doesn't matter if your annual figure, on paper, looks generous.

Why this is wage theft — and now criminal

Underpayment used to be a civil matter. You'd find out, your employer would back-pay you (sometimes), the Fair Work Ombudsman might issue a fine, and life would go on.

That changed on 1 January 2025.

From that date, intentional underpayment of wages is a criminal offence in Australia under the Closing Loopholes legislation. The penalties for intentional breaches can include up to 10 years' imprisonment for individuals and fines into the millions for companies — alongside the civil exposure that already existed.

This isn't theoretical. In the 2024–25 financial year alone, the Fair Work Ombudsman recovered $358 million in unpaid wages for more than 249,000 underpaid workers. The number of anonymous tip-offs to the regulator jumped past 25,000 — a 50% increase year on year. Workers are dobbing in their employers, and the regulator is acting on it.

Annualised salary arrangements with broken set-off clauses are one of the biggest contributors to those numbers. They're particularly common in retail management, hospitality, finance, professional services, and tech. Anywhere the contract says "salary inclusive of all entitlements" and the actual hours stretch beyond what that salary genuinely covers.

If you're about to sign one, you want to catch it now — not three years and a back-pay claim later.

What to look for in your contract before you sign

Here are the specific clause patterns to watch for. These aren't automatically wrong — they're the patterns where things go wrong most often. If you spot any of these, read them carefully.

Patterns that need scrutiny:

"Your salary is inclusive of all entitlements under any applicable Modern Award or enterprise agreement." → This is the classic all-inclusive set-off. It's only as safe as the salary number itself. If your salary in any pay period falls below what the Award would pay you, the clause doesn't save the employer — but it does mean you have to spot the gap yourself.

"Your salary absorbs all overtime, penalty rates, allowances and loadings." → Same problem. Wide language, no reconciliation, no cap on hours.

"You may be required to work reasonable additional hours" — with no definition of "reasonable" and no cap. → "Reasonable" is doing a lot of heavy lifting here. The NES does cap additional hours, but in practice this clause gets stretched well past what the salary actually covers.

"The Company does not consider any Modern Award to apply to your role" — without naming the Award being excluded. → Often wrong. Don't assume "professional role" means "award-free." The Professional Employees Award, the Clerks — Private Sector Award, and the Banking, Finance and Insurance Award cover plenty of white-collar roles paid well into six figures.

No mention of which Modern Award covers your role at all. → Silence isn't safe. The Award still applies even if your contract pretends it doesn't.

No commitment to reconcile your salary against Award entitlements annually. → Best-practice contracts now include this. If yours doesn't, you're carrying the risk of spotting any shortfall yourself.

No commitment to maintain records of your hours worked. → After the 2025 Federal Court rulings, employers are legally required to keep records of hours worked even for salaried employees, so they can prove the salary actually covered the work in each pay period. If your contract is silent on this, that's a red flag, not a feature.

"But I'm on a high salary" doesn't save you

A common misconception: "I'm on $130k, so the Award stuff doesn't apply to me."

Wrong. Modern Award coverage depends on the classification of your role, not your salary. The Clerks — Private Sector Award, the Professional Employees Award, the Banking and Insurance Award, the Retail Award — these cover plenty of roles paid well above $100k. Being on a salary doesn't put you outside the Award. It just means your salary is supposed to compensate you for everything the Award would have given you.

There's a separate concept — the high-income threshold, indexed each year — that affects unfair dismissal access and some narrow exemptions, but it doesn't decide whether the Award applies in the first place. If your role fits within an Award's classification structure, the Award covers you.

So the first question to ask before signing isn't "what's my salary?" It's "which Award covers this role, and does my salary actually exceed what the Award would pay me for the hours expected?"

What to push back on (and how to say it)

The good news: this is one of the easiest things to negotiate before you sign. Asking for clarity on pay is normal, professional, and the kind of thing any reasonable employer should be ready to answer. If they get defensive, that's information too.

Five things worth asking for:

1. Confirmation of which Modern Award (if any) covers your role. If they say "none applies," ask them to confirm in writing which classification structure they've assessed your role against.

2. A cap on expected hours. Wording like "the parties agree the salary is calculated on the basis of an average working week of X hours" gives you a concrete number to measure against. Without it, "reasonable additional hours" can mean anything.

3. An annual reconciliation clause. This commits the employer to compare your salary against what you would have earned under the Award each year, and pay the difference. Some larger employers already do this — most don't unless it's in the contract.

4. A commitment to maintain hours records. Post-2025, this isn't really a favour — it's something the employer should already be doing. Having it written into your contract just makes it explicit.

5. A fall-back clause. Wording like "if at any time the salary paid in a pay period is less than the minimum entitlements under the applicable Award, the Company will pay the shortfall in that pay period" protects you and is increasingly considered best-practice drafting.

A script you can send before you sign

If you want to push back without making it awkward, here's a template you can adapt and send to whoever sent you the offer. Keep it brief, friendly, and specific. You're not accusing anyone of anything — you're asking sensible questions about how the pay structure works.

Subject: A few questions on the offer before I sign

Hi [Name],

Thanks again for the offer — I'm keen to get this signed and get started.

Before I do, could I clarify a couple of things about the pay arrangement?

1. Could you confirm which Modern Award (if any) the company considers applicable to this role?

2. The contract mentions "reasonable additional hours" — is there a number of hours per week the salary is calculated on? It would help me to have that documented.

3. Does the company conduct an annual reconciliation of salary against Award entitlements? I've read recently that this is now considered best practice for annualised salary roles.

Happy to jump on a quick call if it's easier to talk through.

Thanks,
[Your name]

That's it. No threats, no legal language, no friction. You're just asking for the things any well-run employer should already be able to answer.

If they answer clearly and the numbers stack up — great, sign with confidence. If they hedge, dodge, or get defensive, you've learned something important about the company before you start working there.

Back to that Friday deadline

You started this post staring at an offer that says your salary covers "all overtime, penalty rates and allowances." 50-hour weeks were mentioned in the interview. The deadline to sign is Friday.

Now you know what that clause is actually doing, where it can quietly break, and what to ask before you put your name to anything. You also know that a contract with a vague set-off clause and no hours cap isn't automatically a bad offer — it just needs a couple of sensible questions answered before you sign.

Sign the version of the contract you've actually understood. Not the version you've skimmed under pressure.

One quick way to check

If you'd rather not work through your offer line by line on a Thursday night, that's what Contractam is for. Upload your contract and we'll flag which Award applies, whether your salary genuinely covers the hours, and exactly which clauses to push back on before you sign. Your first analysis is free.

Disclaimer: This article is for general information only and does not constitute legal advice. For specific questions about your situation, consult a qualified Australian employment lawyer.