Each financial year, the Fair Work Commission (FWC) reviews the minimum wage and decides whether to increase this amount and if so, by what percentage. As of 1 July 2023, the national minimum wage has increased to $23.23. Likewise, minimum award wages have increased by 5.75%. This decision comes from an expert panel after receiving submissions from the Australian government, state governments and various employee and employer representative bodies. The FWC panel’s decision accounts for various economic factors, including CPI growth, unemployment rates, inflation, business growth and changes in the wage price index. This article will explain the FWC’s recent minimum wage decision and what these changes mean for you as an employer.
The Minimum Wage Increase
As part of the FWC’s Annual Wage Review, the national minimum wage (applicable to award-free employees) from 1 July 2023 has increased to $23.23 per hour ($882.80 for a 38-hour week). Additionally, minimum awards wages have increased by 5.75% on the same date.” the This decision confirmed the following increases:
The increases apply from 1 July 2023 for:
- award-free employees; and
- award–covered employees.
Increase to Superannuation
In addition to the changes to the national minimum wage and minimum award wages, the superannuation guarantee will also increase from 10.5% to 11% on 1 July 2023.
Continue reading this article below the formWhat Do These Changes Mean for Your Business?
Employers who pay in strict accordance with the national minimum wage or the minimum rates under an applicable award should review and prepare to increase both employees’ wages and superannuation contributions.
Employers who pay above the new national minimums (as outlined above) are not required by law to increase their employees’ wages. However, if you maintain your current rates of pay, the amount you are paying over the minimum entitlements will reduce. As such, employers should ensure their ‘buffer’ is still high enough to cover any additional hours or overtime their employees may work from time to time.
Regarding superannuation, you must increase superannuation contributions to an employee’s nominated account. However, whether the total amount paid to an employee increases overall will depend on how each employment agreement expresses remuneration. Notably:
- if the employee’s remuneration is expressed as a base salary plus superannuation, the superannuation component increases; alternatively
- if the employee’s remuneration is expressed as a total package (for example, $60,000 including superannuation), there will be a question as to whether the total amount increases.
Employers should note if the relevant agreement expressly includes a clause that permits the employer to reduce the salary component if there is an increase in the superannuation rate. While this type of clause is less common, it is the clearest way of determining that an employer can reduce the salary component of a total package to meet the annual mandatory increase to superannuation contributions.
Risks of Paying Below Minimum Wage
Failing to pay in accordance with the national minimum wage or the minimum rates under a modern award is likely to result in an underpayment. A current employee or former employee can bring an underpayment claim within six years of the alleged underpayment. Likewise, the Fair Work Ombudsman can also bring an underpayment claim against an employer.
An underpayment claim can arise in circumstances where an employer pays an employee under the national minimum wage. However, a modern award may cover the employee, therefore entitling them to higher standards of pay. Therefore, the employer should have applied these higher rates per the relevant modern award rather than pay the national minimum wage.
An employer might argue that an employee agreed to receive a lesser amount in their employment agreement. However, this still exposes the employer to the legal consequences of underpayment. In addition to the underpayment liability itself (i.e. the difference between what the employee was paid and what they are actually entitled to), employers who have been found to have underpaid employees may also be liable for significant penalties for breach of the Fair Work Act.
Consider Award Coverage
The annual increases to the national minimum wage and minimum award wages also highlight the importance of understanding:
- which modern award applies to each of your employees (if any); and
- what rate of pay it entitles each employee to.
Generally, an award applies by reference to the employer’s industry or the employee’s occupation. Likewise, you must consider whether any award classifications cover the employee. These classifications may also detail different levels of experience and qualifications and the equivalent rates of pay. This can be a confusing process, particularly if you have employees in various industries and classifications. Therefore, it is helpful to get legal advice to meet any statutory obligations and ensure you pay your employees correctly.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Key Takeaways
As of 1 July 2023, both the national minimum wage and minimum award wages have increased. The superannuation guarantee has also increased. Employers must ensure they meet this updated minimum payment and minimise the risk of underpayment claims and associated financial penalties.
If you need further information on how these changes affect your business, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
The national minimum wage (applicable to award-free employees) from 1 July 2023 is $23.23 per hour ($882.80 per week). Meanwhile, minimum modern award wages have been increased by 5.75%.
The respective minimum wage increases apply from 1 July 2023 for award-free employees and award covered employees.
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