The Fair Work Commission (FWC) has finished its annual wage review and announced a 3.75% increase to both the national minimum wage and modern award wage rates.
From 1 July 2024, the national minimum wage will increase to $24.10 an hour for permanent employees (up from $23.23) or $915.90 for a 38-hour week (up from $882.80). For casuals, the minimum wage will increase to $30.13 an hour (from $29.04), inclusive of the 25% casual loading.
The FWC estimates that the increase to minimum and award wages will impact around a quarter of Australian workers.
Given their scope, all employers are affected in some way by rises to minimum wages, not just those employing 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.
So now we know the figures, all Australian businesses should begin planning and budgeting for the year ahead.
Changes to superannuation
In addition to increases to minimum wages, from 1 July 2024 the superannuation guarantee, or the percentage of employees’ remuneration that employers need to pay, will increase to 11.5% (up from 11%).
From 1 July 2025, the new superannuation guarantee rate will rise to 12%, where it will remain.
Coming ready or not!
Whether or not you agree with the increases to minimum wages and superannuation, 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:
- Review current employee rates of pay, particularly if your employees are paid at or around the current minimum rates of pay or if you have award-covered employees paid a salary, to ensure that they keep 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.
- Communicate the relevant changes to impacted employees.
- Update the terms of your employment contracts to ensure compliance with these changes.
- Update your payroll processes and systems.
Look closely at your pay rates
The impact of minimum wage increases go beyond the lowest paid workers. If you pay your employees above award rates, you may not need to increase their pay, provided their pay does not fall below these new minimums. However, this may still be a good opportunity to review your your employee pay rates.
We recommend that every organisation has 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.
A major factor to weigh up when reviewing rates of pay is whether your increases are keeping up with the rate of inflation. The latest figures from the Australian Bureau of Statistics found the annual Consumer Price Index is 3.6% for the March quarter of 2024 (the wage price index is running at 4.1%).
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 ongoing talent 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 tight labour market and cost of living pressures, employees 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 the current labour market.
If you need assistance to ensure your rates of pay are compliant with minimum wage increases, or require help with your wider remuneration stragety, please contact MyHR.
