The Fair Work Commission is phasing out junior pay rates for half-a-million 18-20 year olds in key sectors, hitting SME employers with higher labour costs from December.
SMEs are facing a significant hike in labour costs after the Fair Work Commission ruled to abolish junior pay rates for 500,000 employees aged 18 to 20 across three of Australia’s most youth-dependent industries.
The decision will require small and independent retailers, fast food operators and pharmacy owners operating under three awards to pay 18-20 year olds full adult rates by as early as 2029, with changes phasing in from December this year.
“The Full Bench decided that for junior employees who are adults, which is to say, aged 18 and over, variation of their minimum wages was justified for work value reasons,” the FWC stated. Pay rates for employees under 18 will remain unchanged.
For operators already navigating thin margins and rising costs, it adds another layer of workforce cost planning for business owners who can least afford payroll mistakes.
“The ability to lawfully pay young workers a lower minimum wage has been enshrined in Australian law for as long as we have had minimum wages, and whilst paying the same wage for the same work makes sense in terms of fairness, there is also a risk that employers will not be able to afford the wage increases,” says Simon Obee, Head of HR Advisory and Senior Legal Counsel at Employment Hero. “If they can’t hire as many staff as a result, this will adversely affect young workers, the very people these new rules are designed to protect.”
SMEs Should Factor In Phased Increases To Junior Rates
The Fair Work Commission ruling applies to young Australians employed under specific awards: General Retail Industry Award, Fast Food Industry Award and Pharmacy Industry Award.
The existing award structure was introduced under the theory that lower wages would make inexperienced young workers more attractive to employers. Currently, employees aged 18 to 20 receive a percentage of the full adult rate based on their age. An 18 year old currently receives 70 per cent, a 19 year old receives 80 per cent and a 20 year old receives 90 per cent of the applicable adult minimum wage.
The FWC’s decision will phase out these discounts over a transition period of up to four years. Rates for 18 year olds will be increased by 5 percentage points each year, beginning this December and continuing until full adult rates are reached. The higher rates will only apply once an employee has gained six months’ experience with the same employer, a detail that could soften the immediate cost impact for businesses with high staff turnover.
Small Retailers And Fast Food Operators Face The Sharpest Cost Increases
The industries covered by this decision are dominated by small businesses. The Australian Retail Council notes that 95 per cent of its members are small and independent operators. Retail, fast food and pharmacy already rely disproportionately on younger workers to fill rosters, particularly for evening and weekend shifts, meaning the cumulative effect of moving every 18-20 year old to full adult rates represents a material increase in the wage bill for businesses least equipped to absorb it.
The concern goes beyond immediate costs. The Australian Chamber of Commerce and Industry has warned the decision could reduce incentives to hire younger people. If an 18-year-old with no experience costs the same as a 25-year-old with several years of skills, some employers may simply hire the more experienced candidate. It’s a legitimate concern given youth unemployment already sits at 10 per cent, more than double the national rate.
Employer Groups And Unions Split On The Long-Term Impact
The ARC has welcomed the retention of junior rates for younger teens but says the ruling for 18-20-year-olds is a financial blow for businesses. “Retail has long been the training ground for Australia’s future workforce,” says CEO Chris Rodwell. “Small retailers told us clearly that junior rates help them take a chance on young people who may not yet have experience.”When wage costs rise faster than productivity in this environment, it compounds the pressure on hiring, investment and ultimately prices.”
The Australian Chamber of Commerce and Industry has described the decision as a ‘poor outcome’ that may have unintended consequences on the labour market. “This is a disappointing decision that will make it even harder for young adults trying to forge a career,” says CEO Andrew McKellar. “Junior rates recognise that young workers are often new to the workforce and still developing skills. Removing them reduces the incentive for businesses to give young people a start. Policies that unintentionally close that door risk leaving more young people on the sidelines.”
Unions have broadly endorsed the ruling. Shop, Distributive and Allied Employees’ Association National Secretary Gerard Dwyer hailed it as “a landmark decision, up there with the introduction of equal pay for women in the 1970s”. He argues paying people different wages for the same work can no longer be justified. “It may take longer than we would have liked, but the principle has been established that no longer will 18-year-olds be treated as second-class citizens,” he says.
Start Mapping Now For The First Pay Increase
With the first rate increases still months away, employer groups are urging businesses in retail, fast food and pharmacy to begin workforce audits and cost modelling now rather than wait for the changes to take effect.
The immediate priority, advisers say, is identifying every employee aged 18 to 20 on the payroll, mapping their current rates against the phase-in thresholds, and understanding the six-month experience qualifier that determines when individual workers become eligible for higher rates.
Payroll system readiness is also emerging as a pressure point. Businesses still managing pay manually or on outdated systems face the highest compliance risk when new award rates take effect, since errors in applying updated rates could expose employers to underpayment claims.
The decision currently applies only to the three affected awards, but employment law observers have flagged it as a potential signal for how the FWC may approach junior rates across other modern awards. Employers in hospitality, manufacturing and other industries with junior rate structures are being advised to watch proceedings closely.
Further cost pressure may follow. The FWC’s Annual Wage Review, expected in mid-2026, could compound the wage bill impact for employers still adjusting to the junior rates ruling.
