How will the annual wage increase affect your business?

The annual wage increase and your business

As you may have heard, there are big changes coming soon to minimum wages. This will have a flow-on affect to all businesses. Find out what you need to know as a business owner and get your action plan in place.

Every year, the Fair Work Commission (FWC) does an Annual Wage Review. The Fair Work Commission (FWC) is an independent statutory body responsible for setting minimum wages and maintaining a fair and balanced industrial relations framework. During the Annual Wage Review, the FWC considers factors such as the national economy, productivity, living standards, and the needs of low-paid workers. The objective of the review is to strike a balance between providing fair wages for employees and considering the financial capacity of businesses.

Key points to come out of the latest Annual Wage Review that was announced on 2 June 2023:

• Effective from the first full pay period commencing on or after 1 July 2023
• The Commission has decided to increase the minimum wages in all modern awards by 5.75%
• The National Minimum Wage has also been increased from $21.38 per hour to $23.23, an increase of 8.65%

Which employees does this apply to?

The wage increase doesn’t affect all employees directly.

It will directly impact employees in specific awards, particularly employees in retail, hospitality, care and support services. As at May 2021, when looking at the Australian workforce, 20.5% of the employee workforce was paid at rates specified in the Commission’s modern awards (‘modern award-reliant’). Employees who are modern award-reliant earn, on average, considerably less than other employees. Their average hourly wage is lower ($28.60 compared to $46.20) and they work on average fewer hours per week (26.2 compared to 33.0).

Here are the most common modern awards:

• General Retail Industry Award 2020
• Social, Community, Home Care and Disability Services Award 2010
• Hospitality Industry (General) Award 2020
• Fast Food Industry Award 2010
• Restaurant Industry Award 2020
• Children’s Services Award 2010

The 5 industries with the highest proportion of employees on modern awards are: Accommodation and food services; Administrative and support services; Other services; Retail trade; and Arts and recreation services

What does this all mean for the Australian workforce and employers?

According to FWC, because the National Minimum Wage applies only to a small proportion of the workforce, this outcome will not have much of an impact on the larger economy.

How does this compare?

In the pre-pandemic period (2019-early 2020), wage growth was relatively modest, with the annual wage increase ranging between 2% to 2.5%. Various factors, such as slow economic growth, underemployment, and wage stagnation, contributed to the subdued wage growth.

What are the flow-on impacts of the wages increase?

The annual wage increase will also increase other costs which are calculated based on wages levels. These will include the following:

• Superannuation Guarantee (the Superannuation Guarantee contributions rate is also set to rise to 11% from 1 July 2023)
• Workers Compensation premiums
• State-based payroll taxes

Wages for non-award employees

Employees who are not covered by modern awards often have individual employment contracts or agreements in place. In response to the wage decision, these employees may engage in negotiations with their employers to seek a wage increase that aligns with the new minimum wage rates. They may present the wage decision as a benchmark for their discussions and aim to secure fair and reasonable wage adjustments.

How does this affect business owners?

Business owners need to ensure compliance with the new minimum wage rates by reviewing and updating employment contracts, payroll systems, and relevant documentation.

The wage increase will have a financial impact on businesses’ labour costs, particularly for industries with a high proportion of minimum wage employees.

Your action plan

1. Determine required increases to wages rate
2. Update payroll systems
3. Communicate with employees about the wage changes, address concerns, and ensure you maintain a positive work environment during times of change
4. Review your budgets and forecast
5. Consider adjusting prices, productivity, or operational strategies to manage the increased labour costs effectively

If you would like to discuss how the annual wage increase decision will affect your business, contact us. We can help you work through questions such as:

• Will you need to reduce your number of employees?
• Will this require you to raise your prices?
• Will you need to investigate alternatives to adding new employees?

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