Last month, the Fair Work Commission announced a 5.75% increase to the minimum rates in the modern awards, which takes effect from the first full pay period after 1 July 2023.  For those employees who are not covered by a modern award or enterprise agreement, and are paid the National Minimum Wage, they will receive an increase of 8.6%.

The additional increase to the National Minimum Wage is a result of a realignment for the National Minimum Wage, and which shifts the existing link between the National Minimum Wage and the lowest classification available in a modern award, a level C14, to now link the National Minimum Wage with the C13 classification. This realignment is then compounded by the increase to the C13 rate (along with all other minimum rates in modern awards) of 5.75%.

The Fair Work Commission said it made this two-step decision because the C14 classification was only ever intended to be a transitional rate for new entrants into a workforce.  Once those new entrants became appropriately skilled, they should then transition to a higher classification.  The Fair Work Commission said that maintaining a safety net for all Australians on that (intended) temporary rate is inappropriate.

While approximately 20.5% of Australian employees rely on the minimum rates in modern awards, the Commission says that only 0.7% of Australian employees are not covered by a modern award or enterprise agreement and are paid the national minimum wage. As a result, the Fair Work Commission said that the sizeable increase to the National Minimum Wage will not have “discernible macro-economic effects”. President Hatcher pointed to statistics from last year’s 5.2% increase which impacted one in four workers whose wages bill made up 11% of the national wage bill and commented that this increase will make only a modest contribution to total wages growth and consequently will not cause or contribute to any “wage-price spiral”. These comments also acknowledged concerns raised by the Reserve Bank of Australia, which recently issued a warning that any “large” increase would contribute to a “wage-price spiral”.

The Commission acknowledged that the increase will not maintain the real value of minimum wages in the face of high inflation rates, or reverse the reduction in real value that has occurred in recent years, but the Commission said this increase is the most that can be justified in the current economic circumstances.

The effect of the increase will mean that the National Minimum Wage will lift $1.85 per hour from $21.38 to $23.23 from the first full pay period on or after 1 July 2023.

Aitken Legal encourages employers to check the minimum rates of modern awards relevant to their business, and where the minimum rate is being paid to employes, ensure that the increase is passed on to avoid the risk of underpayment.

It is also essential that employers review pay rates for employees currently receiving over-award payments, or who engaged under enterprise agreements, to ensure that they do not underpay their employees when compared to the revised National Minimum Wage or relevant award rates.

Superannuation

Employers are also likely to see an additional increase in labour costs through the increase to the superannuation guarantee rate from 10.5% to 11%.  Employers who pay employees a total remuneration package which is inclusive of superannuation, should seek advice as to whether their contract of employment permits them to absorb the increase in superannuation, or whether they will have to increase the employee’s remuneration package to account for the superannuation increase.

Contact Aitken Legal

Contact Aitken Legal if you have any questions about the wage increase and its application to remuneration arrangements, including through modern awards and enterprise agreements, or about the changes to the superannuation guarantee rate and how it is to be applied.