As a business owner, taking care of your employees is part of the job. The employment contract you share with your employees is one of the key ways you’ll be able to lookout for your team.  

For instance, specific clauses like a set off clause can be drafted for the benefit of both parties. Sometimes, it suits the employee and the business to have a clause that is a little different from the standard. 

When used correctly, set off clauses can be great for everyone. However, it’s important to be aware of the legal considerations, that way you can utilise set off clauses in a way that benefits your employees and business. Not doing it the right way can have the opposite effect. 

Keep reading to learn more about set off clauses and the best way to place them in your employment contracts. 

What Is A Set Off Clause? 

A set off clause is an alternative payment to modern awards. When an employee is owed a modern award, an employer will need to add it to their pay- which is set by the National Employment Standards (NES). Modern awards generally consist of a base rate, as well as entitlements such as payment for overtime. 

However, if an employer and employee agree to a set off clause, then the employer doesn’t need to individually add the awards and entitlements to each pay. Rather, the employee gets paid an overall base salary that includes all the awards and entitlements. As a result, their base pay is higher than the national minimum for their industry. 

How Do I Know What Modern Awards My Employees Are Entitled To? 

As an employer, you have a number of responsibilities towards your employees. Knowing their minimum entitlements is one of them. If you’re unsure about your employees minimum entitlements under the NES, you can check out Fair Work Australia for more information. 

In some cases, if you have a registered agreement then modern awards won’t apply. However, if the amount in the agreement is less than minimum award, then you are likely to owe your employees their awards and entitlements, despite the registered agreement. We know- this can be a lot to get your head around! 

If you’re confused or need more help figuring everything out, then it’s best to get in touch with an expert Employment Lawyer. They’ll be able to provide guidance on what you owe your employees. 

Remember, not paying your employees what they deserve under the NES is a legal offence. If you want to avoid penalties, it’s important to ensure your employment practices are compliant with the law.  

To learn more about modern awards, read our article Is Your Business Compliant With Your Modern Award? 

How Do I Use A Set Off Clause In My Employment Contracts? 

Once you and your employee agree to having a set off clause in your employment contract, you’ll need to get one drafted. This could be in a brand new agreement or in an employment agreement that already exists. Whichever way you’re going with, it’s best to have a legal professional handle this. 

A set off clause needs to cover the right matters, with proper wording. For instance, if you’re setting off over time pay and not penalty rates, then the set off clause will need to state this. This way, there won’t be any confusion between you and your employee, leaving less chances for a dispute. 

Another thing you need to be mindful of is making sure the set off clause is adding up to cover the minimum standard. If it falls underneath, then you end up underpaying your employees.  Even if it’s not done on purpose, underpaying your employees leads to legal consequences that could hurt your business financially. Moreover, a situation like this could seriously harm your business’s reputation as well. 

That’s why, it’s best to have a legal expert draft all your important clauses, like a set off clause for you. This way, you can be assured it’s ticking all the right boxes and you have a legally compliant agreement in your hands. 

Do You Have A Right To A Set Off Clause?

As we mentioned, a set off clause is an option that is agreed upon by an employer and their employee. You cannot force your employees to agree to something, the same way they can’t compel you to do the same. 

If neither you or your employee is interested in having a set off clause, then there’s no need for the employment contract to contain one.  

What Happens If There Is No Set Off Clause? 

If there’s no set off clause, then you can simply just follow the modern awards and entitlements set out by Fair Work Australia. Make sure you’ve read through and followed it carefully, as you don’t want to make a mistake here. Getting in touch with an expert in Employment Law can help answer any questions you may have about modern awards and entitlements. 

What Else Do I Need To Know About Using Set Off Clauses? 

As set off clauses are based on modern awards, they are subject to changes. Therefore, it’s important to stay up to date on all employment law related matters, so you don’t end up accidentally under paying your employees because you weren’t aware of a change. 

Staying in the loop is crucial however, we understand that information can get by you sometimes. After all, business owners are busy. We can help keep you informed through our Membership Service. You’ll be regularly updated through our member exclusive content, plus you can schedule in chat with a lawyer when you like so you have good legal advice available at your convenience.  

This can help ensure that anything related to your set off clauses and all your other business legals are sorted.  

Next Steps 

If you’re thinking of utilising a set off clause, then it’s important to have a legal expert draft one for you. Set off clauses need to meet certain regulatory requirements and not doing so could lead to repercussions for your business. To summarise what we’ve discussed: 

  • Set off clauses in contracts can benefit both employers and employees if used correctly
  • Legal considerations are important when using set off clauses to avoid adverse effects
  • Set off clauses replace the need to individually add modern awards and entitlements to each pay 
  • Employees receiving a base salary with all awards and entitlements included might have higher pay than the industry minimum
  • Employers must know their employees’ minimum entitlements under the NES
  • Registered agreements may exempt employees from modern awards, but if they fall below the minimum award, employees are still entitled to their awards and entitlements
  • Failure to pay employees what they deserve under the NES is a legal offence with potential penalties
  • Set off clauses require professional drafting to cover the right matters and ensure legal compliance
  • Clear wording in set off clauses avoids disputes between employers and employees
  • Ensuring the set off clause covers the minimum standard is crucial to prevent underpayment and legal consequences
  • You cannot force employees to agree to a set off clause as it’s an agreement between both parties
  • Without a set off clause, employers should follow modern awards and entitlements set by Fair Work Australia
  • Stay updated on employment law changes to avoid unintentional underpayment
  • Consider using our Sprintlaw Membership Service to stay informed and access legal advice for business needs
  • Legal experts should draft set off clauses to meet regulatory requirements and avoid business repercussions

If you would like a consultation on set off clauses, you can reach us at 1800 730 617 or for a free, no-obligations chat.

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