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What you need to know about the minimum wage increase in Australia

What you need to know about the minimum wage increase in Australia

The minimum wage in Australia is getting an increase as of the new financial year, with our lowest-paid workers soon to be given a $40-a-week pay rise.

Minimum wage will be lifted from a base of $20.33 to $21.38, a hike of 5.2% effective from July 1. This equates to $1.05 more an hour, with wages lifting from $772.60 a week to $812.60 a week.

The Fair Work Commission handed down this decision to support workers in a time of higher inflation. This is the highest increase to minimum wage since 2006.

At a press conference in Queensland, Prime Minister Anthony Albanese said this decision would “make a difference to the people who are struggling with the cost of living”.

“Many of those people who are on the minimum wage are the heroes of the pandemic. These workers deserve more than our thanks. They deserve a pay rise, and today they’ve got it,” he said.

Who gets the minimum wage increase?

Many employees in Australia generally have their minimum wage set by the award that covers their industry or occupation. This minimum wage increase applies to those not covered by an award or registered agreement.

Put simply, those who will be impacted by the minimum wage increase are those earning the minimum wage - typically casual workers.

Employees working in industries severely impacted by the pandemic will not incorporate the new wage rise until October 1, including awards in the aviation, tourism, and hospitality sectors due to these exceptional circumstances.

How many employees will this impact?

This decision is expected to positively impact around 180,000 workers on minimum wage come July 1.

And for the 2.7 million Australians on industry awards, those on skilled rates should receive a 4.6% increase, with those on unskilled awards earning $40 more a week as well.

The state of inflation: how it impacts the national minimum wage

Annual inflation in Australia reached a record not seen since the 1990s for the 12-months to the March 2022 quarter, hiking by 5.1%. And Australians are certainly feeling the pinch, with the cost of living on the rise as well as the Reserve Bank of Australia’s cash rate.

And for employees who haven’t seen an increase to their pay above 5.1%, or at all in many cases, this means your dollars are not going as far as they used to. And rising inflation most significantly impacts lower-income earners, such as those on minimum wage.

The Fair Work Commission reviews the national minimum wage and minimum pay rates under awards every year. The Australian Unions had requested a 5.5% hike for minimum wage, while employer groups had campaigned for less than half that suggestion at 2.5%.

Earlier this month, the Albanese government called on the Fair Work commission to not allow low-paid workers to “go backwards”, by backing a minimum wage increase that was at least in line with annual inflation at 5.1%.

This year, following record inflation and higher cost-of-living pressures, the Fair Work Commission agreed to increase the national minimum wage by 5.2%.

However, inflation is expected to continue to rise. Reserve Bank of Australia Governor, Philip Lowe, has suggested it could peak at 7% by the end of 2022.

Fair Work Commission president, Iain Ross, noted that ordering an increase for July 1 that may be lower than inflation means that some workers are receiving a “real wage cut”, but that this may be fixed in later years.

The decision needed to be “balanced against the need to provide greater relief to low-paid workers in the context of rising cost of living pressures,” Mr Ross said.

What the increase to wage growth means for businesses

An increase to national wage growth can be an intimidating prospect for some small business owners that are also struggling with cost-of-living hikes on top of supply chain issues increasing business costs. Some industry experts fear that this move could represent risk to the economy.

Australian Chamber of Commerce and Industry chief executive, Andrew McKellar, said: “By our calculations, this will add $7.9 billion in costs to affected businesses over the year ahead.”

“That will be a very considerable burden that those businesses will either have to take to the bottom line or pass on to their customers,” Mr McKellar said.

However, Prime Minister Albanese cut through these fears by asking businesses to look realistically at the cost of this national wage hike.

“This is $1 an hour,” he said.

“Let’s be clear about what this debate has been about – it’s about whether people who are on the minimum wage should have a real wage cut,” said Prime Minister Albanese.

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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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