At the end of May, The Fair Work Commission (FWC) announced increases to the national minimum wage and minimum award wages.
From the first full pay period on or after 1 July 2023, the national minimum wage will increase by $1.85 to $23.23 per hour (or $882.80 per week), and minimum modern award rates will increase by 5.75% (for rates currently above $869.60 per week).
Given their scope, all employers are affected in some way by rises to the minimum wage, not just those employing award-free, minimum-wage workers. But wage increases should not come as any great surprise, given that the FWC reviews pay rates each year before handing down its national minimum wage order.
This year, the minimum wage increase has been higher than recent years, and the FWC used a different benchmark to calculate the rise.
But now we know the figures, all Australian businesses should begin planning and budgeting for the year ahead.
Changes to the national minimum wage alignment
In handing down its national minimum wage order, the FWC said the increase to the national minimum wage and modern award rates was 5.75%.
However, when you look at the actual rate of the national minimum wage increase, it’s actually 8.65% (from $21.38 to $23.23). That’s because the FWC has aligned the national minimum wage rate with the C13 classification wage rate in modern awards, rather than the lower C14 rate it was previously aligned to, as it concluded the C14 rate was too low.
It also acknowledged that this year's increase would not “reverse the reduction in real value that has occurred over recent years.” Does this mean further realignment and significant jumps to the minimum wage in the years ahead? We can only speculate at this point.
Changes to superannuation
In addition to increases to minimum wages, from 1 July 2023 the superannuation guarantee, or the percentage of employees’ remuneration that employers need to pay, will increase.
The new superannuation guarantee rate of 11%, up from 10.5%, is the first step in the scheduled increase each year to 2025 to reach the eventual rate of 12%.
Coming ready or not!
Whether you agree with these increases to minimum wages and superannuation or not, they are happening and all employers need to be on top of their legal obligations and budget accordingly.
Here’s a quick checklist for preparing your business and your people:
- Communicate the relevant changes to impacted employees.
- Update the terms of your employment contracts to ensure compliance with these changes.
- Reviewed award-covered employees who are paid salaries to ensure the salary keeps up with these new minimums. Remember, too, that in addition to the minimum award rates of pay, increases may also apply to other award payments, including penalty rates, overtime and allowances.
- Update your payroll processes and systems.
Look closely at your pay rates
The impact of minimum wage increases will go beyond the lowest paid workers and all organisations need to create a robust and practical remuneration strategy - including factors such as internal wage relativity and external benchmarking - to ensure they can attract and retain the necessary talent to succeed.
Another major factor to weigh up is whether your pay increases are keeping up with the rate of inflation. The latest figures from the Australian Bureau of Statistics found the Consumer Price Index was running at 6.8% in the March quarter of 2023, while annual wage growth was only 3.7%.
Clearly, if you are increasing your employee’s wages by anything less than the rate of inflation, your people are effectively going backwards financially and may look around at better-paying options, especially in a labour market with persistent skills shortages.
Internal wage relativity
Internal wage relativity defines the pay-rate relationships between your workers. As the minimum wage jumps, there is a risk that the relative difference for more senior positions is eroded if their salaries don’t keep up with the people they are managing.
Consider all pay rates in your business and factor wage increases into budgets or you could lose valuable staff if people feel they are not being fairly compensated for the additional workload and stress that comes with more senior positions.
External benchmarking
While internal wage relativity is a big issue for hierarchical, wage-based organisations, these are not the only workplaces that will be affected by minimum wage rises. The issue of external benchmarking will also come up.
When considering salary and wage rises, organisations should consider a range of factors, which generally include all or some of these:
- The organisation’s own remuneration strategy.
- External market rates.
- Average industry pay rise percentage.
- Internal relativity.
- Business performance.
- Individual performance.
- Value of the role.
- Length of service.
- Resourcing needs.
- Resource availability.
- Business / growth strategy.
The minimum wage increases will have an impact on the external benchmarked factors on this list, which in turn will flow on to the internal factors.
People in Australia’s lowest paid jobs could be getting more money and receiving pay rises at a higher rate than other workers (see above).
Given the extremely tight labour market, high inflation, and cost of living pressures, employee’s may also request more money at pay review time.
Employers who already pay above the minimum wage to attract and retain staff will clearly have to adjust to maintain this position.
In professional services, entry-level graduate positions will also be affected. Companies will likely need to pay a bit more to remain competitive and also do a much better job at promoting the medium- to longer-term advantages of starting in a grad role.
The implications and knock-on effects of the coming minimum wage rises will have an impact on almost all workers in Australia, so be prepared. Employers who act early and factor this in will be at an advantage in this tight labour market.
