National minimum wage rises


15th June, 2022

Get prepared for the national minimum wage increase 2022

Australia’s minimum wage will rise by $1.05 an hour from 1 July following a decision from the Fair Work Commission.

The Fair Work Commission has completed its review into the minimum wage, opting to lift the hourly base rate from $20.33 by 5.2 percent to $21.38.

Workers on award rates will also receive an increase of 4.6 percent, with the decision coming into effect from 1 July, 2022.

However, workers in aviation, tourism and hospitality will need to wait until 1 October to see the rise.

Concerns have been raised from business groups highlighting the increase of labour costs coming at the same time as other inflationary and supply chain pressures.

In response, more than a third (39 percent) of all businesses expect to increase their prices more than usual, according to the Australian Bureau of Statistics (ABS).

“By industry, results showed 59 percent of retail trade businesses expect their prices to increase more than normal over the next three months,” said John Shepherd, ABS Head of Statistics.

“The construction (58 percent) and manufacturing (55 percent) industries were the next most likely to expect price increases.”

RESOURCE: Essential information for this End of Financial Year

But it’s the increase in prices that’s also spurring the need for an increase for low-paid workers, said Fair Work Commission President Iain Ross.

“We are conscious that the low paid are particularly vulnerable in the context of rising inflation,” said Ross.

“If we were to accept the submissions of some of the employer bodies, and award no increase at all, then the real wage reduction would be even more severe.”

What is the minimum wage?

The minimum wage is an employee’s base rate of pay for ordinary hours worked and it’s determined by the specific award that covers their industry or occupation.

A modern award or registered agreement can be used to determine employee wages and conditions, but there are minimum terms in place to cover all employees regardless of the situation.

This means employers and employees cannot be paid less than their applicable minimum wage, even if they agree to it.

A national minimum wage order outlines minimum wage for award and agreement-free employees and is delivered once the Fair Work Commission has made a decision on changing the minimum wage.

It must include:

  • A national minimum wage for adults
  • A special national minimum wage for trainees, apprentices and junior employees.
  • Employees to whom training arrangements apply
  • Employees with a disability
  • A casual loading

The national minimum wage is currently $20.22 per hour, or $772.60 for a 38-hour week (before tax), but will increase to $21.38 (812.60 per week) on 1 July, 2022.

Casual employees covered by the national minimum wage also get at least a 25 percent casual loading.

Who determines minimum wages?

An expert panel headed up by the Fair Work Commission reviews minimum wages received by employees in workplaces in Australia every year. Ultimately, they decide whether to implement a new minimum wage.

After this review, a national minimum wage order is made, which applies from the first full pay period on or after 1 July each year.

What else is at play behind this year’s decision?

Inflation is running at 5.1 percent, meaning that real wages went backwards by 2.7 percent in the last 12 months.

It means that the cost of living is rising twice as fast as wages, newly elected Federal Treasurer Jim Chalmers says.

“For a worker on the minimum wage of $40,000 a year, this cut to real wages has left them $1,080 a year worse off,” he said in a recent statement.

As a result, the Government made a submission to Fair Work in support of a pay rise of 5.1 percent for those on the minimum wage.

What happened to the minimum wage in recent years?

Last year, the Fair Work Commission lifted the minimum wage by 2.5 percent, raising the hourly rate to $20.33.

The increase went ahead despite being opposed by the Morrison Government, while unions last year expressed disappointment that the wage increase was delayed until 1 November for some industry sectors.

In all but one of the past 10 years (2020), the Fair Work Commission has granted an increase in the minimum wage that is more than the prevailing rate of inflation at the time.

Minimum wage rises by percentage over time:

  • 2017 – 3.3%
  • 2018 – 3.5%
  • 2019 – 3%
  • 2020 – 1.8%
  • 2021 – 2.5%
  • 2022 – 5.2%

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How employers can adjust in time for the minimum wage rise

There are steps that employers should take now to prepare for the wage rise, and it makes sense to perform these activities as part of regular performance reviews and business planning activities.

1. Forecast additional costs

“To forecast any impact, employers need to determine how many of their employees are covered by the national minimum wage or any of the 120-plus minimum modern award rates,” said Sean Wilson, CEO of Better HR.

Employers should already know this information as part of their obligations to pay workers their correct lawful entitlements. If they don’t, they should contact an HR and employment law expert.

“About two percent of Australia’s lowest paid workers are on the national minimum wage, and a further 23 percent are on the minimum modern award rates.

“Employers can use this data to forecast and prepare for potential wage rises in their own business,” Wilson said.

2. Tax and business planning contingencies

Once you’ve created a future view of your costs and considered possible changes to the minimum wage and award rates, take the time to discuss any wider impacts to your business and tax planning for the year ahead with your advisors.

“Now is the time to check whether those employees on salaries are meeting the minimum wage conditions contained in a Modern Award on or before the first full pay period after 1 July, 2022, which is when the minimum wage increases take effect,” he said.

For many businesses, pricing in changes like these isn’t as straightforward as passing on the costs to customers by way of a price increases, so take the opportunity to talk through all cost efficiencies available to you before deciding on your approach.

For example, a recent report from MYOB found there’s as much as $1.77 billion lost to the underutilisation of software across Australia and New Zealand. Could it be time for a tech audit in your business with a view of eliminating unnecessary costs?

3. Update payroll tech and processes

Unless you outsource payroll, preparing for a wage rise also means preparing for changes to systems and processes that support it.

That means thinking about how you intend to communicate all changes to your employees, as well as customers and suppliers if they’re going to be impacted.

If you’re using multiple systems to deliver your entire payroll system, including time and attendance, rostering and accounting, then it’s advisable to check each one is prepared for the switch ahead of time.

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