The Fair Work Commission’s Minimum Wage Panel (Panel) has today handed down its minimum wage decision which increased the National Minimum Wage, together with all Modern Award minimum rates of pay by 1.75%.

This year, The Panel was confronted with particularly challenging macroeconomic circumstances arising from the COVID-19 pandemic, including an anticipated fall in Australian GDP by up to 8% and a significant increase in unemployment.

During the review process, “sharply polarised” positions were put to the Panel. While the Government did not express its actual position, it did advocate a cautious approach with a primary objective of maintaining employment.

Employer and industry groups contended that minimum wages should either not increase, or increase at a later stage in the year – this was recommended as many employers are unlikely to be in a position to absorb any increase in labour costs which would adversely impact upon employment and the economic recovery.

While the Australian Council of Trade Unions (ACTU) acknowledged that employers in many industries are adjusting to significant reductions in consumer demand, it sought an increase of 4% to improve the living standards of low paid workers and also act as a stimulus to the subdued economy.

Taking these submissions into consideration, the Panel reasoned that:

• The outlook remains very uncertain;
• The shock to the labour market weights favourably in preserving employment;
• The Panel must also consider the relative living standards and needs of low paid workers;
• If no increase was awarded it would result in a real wage cut which would further disadvantage low paid workers;
• An increase of the size proposed by the ACTU would create a real risk of higher unemployment; and
• The prevailing economic circumstances and pathway to recovery warrant a cautious approach both in terms of the quantum and timing of the increase.

Upon this basis, and while acknowledging the very difficult macroeconomic circumstances, the Panel determined that a 1.75% increase was justified and necessary in the circumstances which will result in the National Minimum Wage will increase to $753.80 per week, or $19.84 per hour.

The Panel has considered that there are exceptional circumstances which justify a delay in the commencement of the increase. While COVID-19 has substantially impacted the economy, the Panel notes that the impact has been inconsistent and not all industries have been impacted evenly. The differential impact of the pandemic required a more “nuanced approach” to the timing of the increase and as such the Panel has determined to implement the increase in stages as outlined below:

What this means for you

Modern Awards

Employers who pay their employees at the National Minimum Wage or Modern Award rates of pay will need to apply the increase upon the dates outlined above. Further information as to the dates for the increase and impacted groups will be provided in due course.

Annualised Salaries and Individual Flexibility Agreements

If you have implemented Individual Flexibility Agreements, you will need to reassess those agreements to ensure employees remain ‘better off overall’ when compared to the newly increased Modern Award rates. Employers who use annualised salary arrangements will need to conduct an audit of those annualised salaries against the new Award rates and working patterns to ensure the annual salary compensates for award entitlements.

Enterprise Agreements

The new Modern Award rates will also form the baseline for ‘better off overall’ testing new Enterprise Agreements (EA). If you have an EA in place, you will need to ensure the minimum base rates in the EA remain at a minimum equal to the new Modern Award rates. If not, EA rates will need to be increased to match the Modern Award.

Allowances

Today’s decision will impact some allowances as well as base rates. A number of Modern Award allowances are expressed as a percentage of the ‘standard rate’, which is linked to the wage rate of a specific classification in the Award. These allowances will therefore increase in line with the increase in the standard rate.

Need help?

enableHR appreciates the challenging economic environment in which businesses are currently operating and can help you understand how this decision affects your business. If you would like assistance in understanding how minimum wages work, auditing and calculating pay rates and assisting you with implementing an appropriate strategy, contact us.