The Model transitional Provisions provide that "The monetary obligations imposed on employers by this award may be absorbed into over-award payments. Nothing in this award requires an employer to maintain or increase any over-award payment". This allows for 'absorption' which is different from offsetting.

For example if the pre-modern award rate of pay was $10/hour and the modern award rate of pay was $12/hour, and employer who had previously been paying $2 above the award rate could 'absorb' the phased increases into the over award payment. Furthermore however, the employer is under no obligation under the modern award to continue to maintain the $2 over award payment. 

Note: Check your employee contractual obligations to ensure that they do not contain the obligation to maintain payments over and above the award rates.

In relation to offsetting, this provision applies in conjunction with the well-established authority that over-award payments do not automatically offset all award entitlements. As a general principle, over-award payments can on satisfy entitlements to which payment is directed.

For example, paying a higher hourly rate than the modern award rate of pay will not offset penalties or loadings in the modern award unless it is clear that the parties intended to do so, and the amount satisfies each of the entitlements that would otherwise have been payable to the employee.

If the employer has properly entered into an offsetting arrangement that makes it clear that over-award payments are in satisfaction of all penalties, wages etc due under the award, then that arrangement can continue as a result of the commencement of the modern awards.

Some industry groups, including trade unions, take contrary views as to exactly what constitutes offsetting, and what award entitlements can be offset, but if a dispute arises than clarification can be sought from Fair Work Australia.