Offset Clause in Employment Contracts

What is an offset clause in employment contracts? 

An offset clause is a provision in an employment contract that allows an employer to pay an employee a higher salary or wage in exchange for not paying certain entitlements that are normally required by law or a Modern Award. These can include overtime, penalty rates, allowances and annual leave loading as examples.  

Offset clauses can be useful for Employers who want to simplify their payroll process or who want to offer their Employees a higher salary without having to pay additional entitlements. However, there are a number of things that Employers need to be aware of before using an offset clause.

What do Employers need to look out for when using an offset clause? 

  • The offset clause must be clear and unambiguous. It must specify exactly which entitlements are being offset and the amount of the salary or wage that is being paid in exchange. For example, the clause could state that the employee will be paid a salary of $100,000 per year in exchange for not being paid overtime or penalty rates. 
  • The offset clause must be fair and reasonable. The salary or wage must adequately compensate the employee, considering their usual hours, job nature, and industry standards.
  • The offset clause must be voluntary. The Employee must agree to the offset clause in writing. The Employer cannot force the employee to sign the clause. 
  • The offset clause must be consistent with the relevant industrial award. If the Employee is employed under a Modern Award, the offset clause must not breach any of the award’s terms and conditions. For example, the award may specify that employees are entitled to overtime pay at a certain rate. If the offset clause does not provide for overtime pay at least at this rate, it may be invalid. 

Employers who are considering using an offset clause should seek advice to ensure that the clause is valid and enforceable. 

Additional tips for employers who use offset clauses

  • Keep good records of all discussions and negotiations with the employee about the offset clause. This will help to protect the Employer in the event of a dispute. 
  • Make sure that the Employee understands the terms of the offset clause. Also ensure that they have had the opportunity to seek independent advice. 
  • Review the offset clause regularly to ensure that it is still fair and reasonable. 
  • Regularly review the payment rate against changes to the Modern Award to ensure that the Better Off Overall Test (BOOTS) is still being maintained. 

By following these tips, Employers can help to ensure that offset clauses are used in a fair and compliant way. 

Additional things to consider when using an offset clause in employment contracts

  • The offset clause should be specific about the entitlements that are being offset. This will help to avoid any disputes in the future. 
  • The offset clause should be reviewed regularly to ensure that it is still fair and reasonable. This is especially important if the employee’s job changes or the industry standards change. 
  • The offset clause should not be used to avoid paying the employee their legal entitlements. If the offset clause is found to be invalid, the Employer may be liable to pay the employee backpay for any entitlements that they were not paid. 


Overall, offset clauses can be a useful tool for Employers. However, it is important to use them carefully and in accordance with the law.

By following the tips above, Employers can help to ensure that offset clauses are used in a fair and compliant way. We can help ensuring that the offset clauses you which to provide are compliant or if you have used them in the past continue to remain compliant. Need help? Contact our team now or email contact@nowactually.com.au.