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Each financial year, the Fair Work Commission reviews the minimum wage and decides whether to increase this amount and if so, by what percentage. As of 1 July 2021, both the national minimum wage and the award rates have increased by 2.5%. This decision accounts for (without limitation) the current COVID-19 context and its impact on businesses and also inflation. This article explains what the changes are and what this means for you as an employer.

The Minimum Wage Increase

On 16 June 2021, the Fair Work Commission approved a 2.5% increase to the minimum wage and the award rates. As a result, the national minimum wage (applicable to award-free employees) has increased from $19.84 to $20.33 per hour and $753.80 to $772.60 per week.

The increase applies from 1 July 2021 for:

  • award-free employees; and
  • award covered employees, except for employees in the retail or tourism industry.

From 1 September 2021, the increase will apply to those under the General Retail Industry Award 2020. 

The increase applies from 1 November 2021 for employees covered by a tourism-related award (listed below):

  • Air Pilots Award 2020;
  • Aircraft Cabin Crew Award 2020;
  • Airline Operations – Ground Staff Award 2020;
  • Airport Employees Award 2020;
  • Alpine Resorts Award 2020;
  • Amusement, Events and Recreation Award 2020;
  • Dry Cleaning and Laundry Industry Award 2020;
  • Fitness Industry Award 2020;
  • Hair and Beauty Industry Award 2010;
  • Hospitality Industry (General) Award 2020;
  • Live Performance Award 2020;
  • Mannequins and Models Award 2020;
  • Marine Tourism and Charter Vessels Award 2020;
  • Nursery Award 2020;
  • Racing Clubs Events Award 2020;
  • Racing Industry Ground Maintenance Award 2020;
  • Registered and Licensed Clubs Award 2020;
  • Restaurant Industry Award 2020;
  • Sporting Organisations Award 2020;
  • Travelling Shows Award 2020; and
  • Wine Industry Award 2020.

Increase to Superannuation

In addition to the minimum wage changes, from 1 July 2021, the superannuation guarantee will increase from 9.5% to 10%.

What Do These Changes Mean for Your Business?

For employers who pay in strict accordance with the national minimum wage or the minimum rates under an applicable award, you should review and prepare to increase both employees’ wage and superannuation contributions.

For employers who pay above the new national minimums, you are not required by law to increase employees’ wages. However, if you maintain that current rate, the amount you are now paying over the minimum entitlements will be less. Hence, you should ensure that your ‘buffer’ is still high enough to cover any additional hours or overtime the employee may work from time to time.

Regarding superannuation, you must increase superannuation contributions to employees’ nominated account. However, whether the total amount paid to an employee increases overall will depend on how the remuneration is expressed:

  • 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 (e.g. $60,000 including superannuation), there will be a question about whether or not the total amount has to increase. It likely will not need to increase if the employment agreement expresses the remuneration as a total package. You should also note if the agreement expressly includes a clause that permits the employer to reduce the salary component if there is an increase in the superannuation rate. This, however, is less common. Without that express right, employers are not on solid ground to argue they can reduce the salary component.

The 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. An employee or ex-employee can bring an underpayment claim within six years of the underpayment. Likewise, the Fair Work Ombudsman (who regulates the employment laws) can also bring forward an underpayment claim. This can arise in circumstances where the employer pays an employee per the minimum rates, but, in fact, an award covers the employee. Therefore, the employer should have applied higher rates than 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 (i.e. the difference between what the employee was paid and what they are entitled to), you may also be liable for significant penalties for breach of the Fair Work Act 2009 (Cth). 

Consider Award Coverage

The increases in the national minimum wage and the award rates also highlight the importance of understanding:

  • which award applies to each of your employees (if any); and
  • what rate of pay each employee is entitled to.

Broadly, an award applies by reference to the employer’s industry or the employee’s occupation. Likewise, you must consider whether the employee is covered by any award classifications, which detail the different levels of experience and qualifications and equivalent rates of pay. This can be a confusing process, particularly if you have employees in various industries and classifications. Therefore, it is useful to get legal advice to meet your obligations and pay your employees correctly.

Key Takeaways

As of 1 July 2021, the minimum wage has increased. You must ensure you meet this updated minimum payment or risk underpayment and financial penalties. If you want further explanation on how these changes affect your business, get in touch with LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is the minimum wage increase?

The national minimum wage has increased by 2.5%. Hence, the minimum wage (applicable to award-free employees) has increased from $19.84 to $20.33 per hour and $753.80 to $772.60 per week.

When will the increase take effect?

The minimum wage increase applies from 1 July 2021 for award-free employees and award covered employees, except for employees in the retail or tourism industry. For those under the General Retail Industry Award 2020, the increase will apply from 1 September 2021. Also, for employees covered by a tourism-related award, the increase will apply from 1 November 2021.

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