Fair Work Commission minimum and award wage increase - cost of living fire blanket for workers or inflationary fire accelerant for business?

The Fair Work Commission Expert Panel on Annual Wage Reviews has handed down its decision to raise the national minimum wage and modern award minimum wages by 5.2%.[1]

Under s.285(1) of the Fair Work Act 2009 (Cth), the Expert Panel is required to “conduct and complete an annual wage review in each financial year”.

This year the Expert Panel took into consideration submissions from the newly elected Australian Government, most state governments, and a wide range of industry, employer and employee bodies. Also pertinent to decision making were key economic indicators such as labour market performance, inflation and cost of living. As a result, the Expert Panel has awarded an increase of $40 to the national minimum wage, which amounts to 5.2%. The national minimum wage will sit at $812.60 per week, or $21.38 per hour, from 1 July 2022.

While employee bodies such as the Australian Council of Trade Unions and the Australian Catholic Council for Employment Relations proposed increases well beyond 5.2%, submissions from employer groups such as the Australian Chamber of Commerce and Industry and Australian Industry Group suggested an increase of between 2.5-3%, if at all. 

Employer submissions included that a wage increase would intensify the cost burden for businesses and risks in the current uncertain economic environment.

Included in the Australian Government’s submission was that a wage increase would “ensure that the real wages of low-paid workers do not go backwards”. Reassurance was also provided that the Australian economy is exhibiting a strong recovery from the impact of the COVID-19 pandemic, notably evidenced by falling unemployment and underemployment rates.

The Expert Panel’s decision noted that “changes in the economic context weigh in favour of an increase in the national minimum wage and modern award minimum wages” and so determined that a 5.2% increase “will protect the real value of the wages of the lowest-paid workers”.

Realistically, the $40 per week increase, based on a 38-hour week for a full-time employee, will mean a 4.6% adjustment for modern award minimum wage rates currently above $869.60 per week, and a $40 per week adjustment for rates below $869.60 per week.

It is important to note that the increase will have a delayed operative date (1 October 2022) for the following awards, due to “exceptional circumstances” in those industries:

• Aircraft Cabin Crew Award 2020

• Airline Operations – Ground Staff Award 2020

• Air Pilots Award 2020

• Airport Employees Award 2020

• Airservices Australia Enterprise Award 2016

• Alpine Resorts Award 2020

• Hospitality Industry (General) Award 2020

• Marine Tourism and Charter Vessels Award 2020

• Registered and Licensed Clubs Award 2020

• Restaurant Industry Award 2020.

What does this mean for employers?

With the exception of employers whose workforces are covered by the Awards listed above, this means that employers will need to conduct reviews on the wages and rates of their enterprise agreement covered employees in the next 2 weeks. This is to ensure that employees will not be paid below the award and national minimum wage from 1 July 2022. There are consequences for not doing so which vary in degree.

Employers should be aware that award wage increases will influence collective bargaining claims, as the assessments under the “Better Off Overall Test” will now need to meet higher minimum award rates. There is also a view that it could intensify wage increase expectations in a high unemployment and high inflationary environment.

Given that 1 July 2022 is also the time for the 0.5% increase in the Superannuation Guarantee rate, this means salary packaging arrangements in contracts of employment (including how superannuation is treated as an exclusive on-cost or inclusive remuneration component), may need to be carefully reviewed. This is in addition to ensuring offset arrangements provide adequate coverage.

Getting your contract structures, wages and rates right can mitigate your legal risks and significantly help reduce unnecessary future costs.

As the Expert Panel itself acknowledged, the recent “sharp rise in inflation impacts business and workers” alike. The minimum wage increase may offer a fire blanket against costs of living pressures for the lowest-paid workers in Australia. It may also add fuel to the inflationary fire, where businesses are under strain with increases in material and energy costs, interest rates, supply chain disruptions and labour skill shortage induced wage cost pressures.

Authors: Darren Gardner & Hannah Lawson

[1] Annual Wage Review 2021–22 [2022] FWCFB 3500.