Fair Work Australia and a rise in the Minimum Wage

Posted on 13 June 2011

Fair Work Australia has announced the second minimum wage decision to come from the Minimum Wage Panel (‘the Panel’). The increase of 3.4% which is to take effect from 1 July 2011 increases the minimum wage from $569.90 per week to $589.30 per week.

This is the first minimum wage increase since 2009 as the there was a freeze on minimum pay increases in 2010. This is the first time that the Panel has awarded a percentage increase. In recent years the increase had been awarded as a flat dollar increase, so the percentage based rise will be a bigger boost for those on the higher paid awards.

This change not only affects all employees who currently are paid the minimum wage but also employees who after 1 July 2011 will be eligible for Federal Government Paid Parental Leave Scheme as the parental leave payment is also increased.

Interestingly, the increase of 3.4% is just above the Consumer Price Index which is 3.3% through the year to March quarter 2011. Whilst, the increase is less than what the Australian Council of Trade Union (ACTU) wanted it is above what employer bodies would have liked to pay and it seems the Panel has applied a ‘meet in the middle’ approach.

The Panel relied on an economy that is performing "reasonably well", growing labour productivity, relatively low underlying inflation and growing employment. However, the increase could have a significant detrimental effect on small business. Especially during a reported slowdown in retail spending and forecasts of a worsening economy. Employer groups have stated that the increases will not only impact the small to medium businesses but also their employees who may have hours reduced or jobs cut and the consumers who will have the wage increase passed onto them. However, some have argued that the increase will result in an increase in retail spending as the employees are likely to spend their increase in the retail market.

The impact on business is much greater due to the fact that this increase takes effect at the same time as the second phase of the transition between pre-Modern Awards and Modern Awards.

Transitional provisions allow employers to phase in new pay rates set by the Modern Awards on an increasing sliding scale over a four year period starting on 1 July 2010 and moving up by 20% at the start of each financial year. The full modern award rates will apply on the first full pay period on or after 1 July 2014. The transitional provisions may vary in across the modern awards. The transitional provisions are often found at schedule A of each Award.

The 1st of July 2011 will be a critical time for businesses operating under Modern Awards and Enterprise Agreements. Businesses need to ensure that they increase base rates of pay in their agreements to at least equal to the relevant new rate in the Modern Award as well as inline with the annual wage review. Businesses with employees on individual Flexibility Agreements need to ensure that the employees are still better off overall.

The increase will also affect allowances which are calculated relative to the “standard rate” used in many Modern Awards.

If your business employs staff covered by an award or that receive close to the current minimum wage then you will need to assess the income of these employees to ensure that from 1 July 2011 you are not underpaying them. If you have concerns of the impact of this change on your business please contact our office to discuss the matter with one of our experienced workplace lawyers.