Small and medium businesses are facing higher wage bills after the Fair Work Commission hiked award rates to help 3 million Australian workers cope with rising living costs.
The national minimum wage will rise by 6 per cent and modern award rates by 4.75 per cent on July 1 this year – the same day new Payday Super laws come into effect.
The Annual Wage Review decision affects around 1 in 5 workers, concentrated in sectors where SMEs dominate: hospitality, retail, healthcare and administrative services. The ruling comes as Employment Hero’s Jobs Report shows wage growth in small and medium businesses is 4.8 per cent year-on-year, suggesting many businesses were already facing higher payroll costs before today’s announcement.
How A Wage Gap And Wild Card Drove the Decision
For approximately 100,000 workers on the lowest award classifications (C13 and C14), the new national minimum wage rises by just under 6 per cent to $26.44 per hour, or $1,004.90 per week for full-time employees.
All other modern award workers will receive a 4.75 per cent increase across classifications. While this is historically high, FWC President Justice Adam Hatcher has characterised as “regrettable” the fact the boost was not even higher. He says the Commission is keen to close a ‘real wage gap’ – where inflation outpaces pay growth – that opened during the pandemic and looks set to persist, with annual inflation sitting at 4.2 per cent and tipped to reach 4.8 per cent in June.
Justice Hatcher says the “wild card” effect of the Middle East conflict on the economy is central to today’s decision. “We have concluded, regrettably, that it would not be practicable or responsible in the current uncertain circumstances to award a real wage increase for employees reliant on modern award wage rates that would be sufficient to close the real wage gap entirely,” he says. The 4.75 per cent increase broadly keeps workers’ pay where it was in real terms on July 1 last year.
Employers with staff on the C13 and C14 classifications will need to pay close attention to the changes. The Commission is starting a three-stage, multi-year process to remove the C13 classification – the lowest ongoing pay level in the award system – and gradually lift those workers towards the C12 rate. C14 rates will rise by the same amount, 6 per cent, as for C13 workers.
Business Groups Note Pressure On Smaller Employers
In its submissions to the Commission, the Australian Council of Trade Unions had called for an above-inflation 6 per cent increase for all modern award workers, not just the lowest-classified, to help close the real wage gap.
From the employers’ side, the Australian Chamber of Commerce and Industry had pushed for a 3.5 per cent rise, while the Council of Small Business Organisations Australia requested the increase remain below the rate of inflation. “Small businesses are not arguing against fair wages. They are arguing for sustainable wages – wages that allow them to keep their doors open, keep their workers employed, and keep contributing to the communities they serve,” COSBOA said in its submission.
Australian Industry Group CEO Innes Willox has welcomed the Commission’s decision not to impose an above-inflation increase but adds 4.75 per cent and 6 per cent are still “confronting numbers to contemplate” in the current climate. “Employers will clearly struggle to absorb these high wage increases at a time when costs are surging and conditions are deteriorating,” he says. “This decision will inevitably flow through to more business financial pressure, higher prices and lower employment in the coming months.”
ACCI says it’s disappointed the reclassification of minimum wage workers is not linked to productivity, considering productivity growth has been ‘anaemic’ for a long time. “For some small businesses, this will be too much to bear,” says ACCI Chief of Policy and Advocacy David Alexander. “For some businesses, they will pass that on, and it’ll end up in inflation. For others, they’ll wear it themselves – it could be the tipping point for some businesses. Others will scale back their investment intentions.”
The Australian Retailers Council says while 3 in 4 retailers have been trying not to pass on rising costs to customers in recent months, thin margins can only stretch so far. “Retailers support fair wages and recognise the contribution retail employees make every day, but this decision comes on top of a growing list of cost pressures that businesses are already struggling to absorb,” says ARCC Chief Legal and Industrial Relations Officer Lindsay Carroll.
SME Employers Face Immediate Budget and Payroll Decisions
With less than a month before the new pay rates take effect, many SME employers face an increase in their admin burden and a possible a cash flow crunch.
Businesses will need to identify which employees are covered by modern awards and determine their current classification levels. Those on the lowest classifications, particularly the C13 and C14 tiers, will see the largest increases. Payroll systems that automatically update award rates can reduce the risk of underpayment errors when the new rates commence on July 1.
The same date is the deadline for Payday Super, which will require businesses to pay superannuation contributions at the same time as wages instead of quarterly. The Australian Tax Office says, despite the urgency of the pending law change, more than half of employers are still not paying super more frequently than quarterly. Even before the wage increase was announced, some looked set to struggle financially with the transition: a new Employment Hero survey has found 2 in 5 Australian businesses have still not reviewed or are unsure of their cash flow impact, less than four weeks out.
“Payday Super is a huge change for every single business and the preparation window is closing fast,” says Rob Dunn, General Manager, Payments, Superannuation and Benefits at Employment Hero. “Our modelling showed businesses needs an average of $124,000 in additional working capital, and with inflation, rising costs and the upcoming ban of card surcharges, many businesses face a confluence of factors that could considerably impact their cashflow.”
Small businesses that employ young workers will also need to factor into their budgets looming increases to junior award rates, which are set to be phased out from as soon as December.
