As an employer, you must pay your employees the correct wages. Failing to do so will breach workplace laws. Further, a breach may result in an employment claim or penalties against your business. Paying wages may appear straightforward. However, many employers fail to do so correctly. Additionally, your employees may expect pay rises in line with industry standards or market rates. Therefore, you must have a good understanding of their expectations of you. This article will outline when to increase employee wages and when you might wish to consider pay raises.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Increases to Minimum Wage
You cannot pay your employees less than minimum wage. A modern award or enterprise agreement may set out your employee’s minimum pay rates if they are covered by the Fair Work Act 2009 (‘Fair Work Act‘). If an industrial agreement does not cover your employees, the National Minimum Wage Order will prescribe their minimum wage.
Additionally, you may have a legal obligation to increase your employee’s wages. Therefore, you must stay up to date on increases to minimum wage. An increase in wages is not guaranteed yearly. However, it is standard practice following an Annual Wage Review. An Annual Wage Review occurs each financial year and involves an expert panel from the Fair Work Commission (FWC) who:
- consider minimum wage objectives (set out in the Fair Work Act) and submissions;
- undertake research; and
- set a new minimum wage order.
This panel typically consists of members with expertise in a range of areas, including:
- workplace relations;
- commerce;
- industry; and
- business.
What if I Pay My Employees Well Above the Minimum Wage?
Although it is essential to remain informed about wage increases, they may not always be relevant to your business. For instance, if you pay your employees a salary or pay rate higher than minimum wage, you are less likely to be at risk of underpayment. In this case, you will not likely have a legal obligation to increase their wages. Consider the following example.
Rob runs a retail establishment and pays his permanent adult staff an hourly rate of $29.00 for their ordinary work hours. For this example, Rob’s employees are classified as Level 1 Retail Employees under the General Retail Industry Award 2020. The recent increase to minimum rates under this award rate means the minimum rate is now $23.38. As Rob is paying almost $6 above the minimum rate, he will not need to increase his employee’s base pay rate.
Continue reading this article below the formWhat if My Employees Request a Wage or Salary Increase?
There may be instances where your employees request a wage or salary increase (i.e. a pay rise). If their pay rate already meets the minimum wage requirements, you may not be obligated to provide an increase. However, it might be a good idea to consider their request. Additionally, you might provide an opportunity for them to meet with you and put their case forward.
Conversely, you should take the time to consider market rates and expectations in your business’ industry and offer pay increases from time to time. This will likely improve employee retention and culture. In addition, it will make working for your business more attractive to prospective employees. Indeed, you may want to consider offering pay raises where:
- an employee or employees consistently perform strongly or exceed your expectations;
- an employee takes on new responsibilities;
- competitors in the same or similar industries provide higher wages or salaries; or
- the business experiences strong growth.
Key Takeaways
As an employer, you must comply with wage increases as they occur from time to time. If you fail to do so, you can face an underpayment claim or penalties against your business. However, it will be helpful to remember that you may not need to increase your employee’s wages if you are already paying them above the minimum wage.
If you need assistance with wage increases or have questions regarding your employee’s coverage under a modern award or enterprise agreement, our experienced employment lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
The National Minimum Wage is the minimum amount you must pay your employee. A relevant award or enterprise agreement may prescribe the minimum rate. However, if this is not the case, you must pay a minimum rate of $23.23 per hour from 1 July 2023. Note that some employees, like junior employees, apprentices or employees with disability pay rates, may have different entitlements.
Each financial year, an expert panel of the Fair Work Commission undertakes an annual wage review, as required by the Fair Work Act 2009 (Cth). This review may result in an increase, variation or revocation of minimum award rates or an increase in the National Minimum Wage.
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