Increase in Australian Minimum Wage Review 2018

Following its 2018 Wage Review, Australia’s Fair Work Commission (FWC) announced a 3.5% increase to minimum wages in early June, prompted by what it described as the country’s “healthy national economy and labour market”

Applicable to the first full pay period falling on or after 1 July 2018, the rise takes Australia’s base rate of pay to $18.93 per hour (from $18.29), or $719.20 per 38-hour work-week (from $694.90).

Timing & Circumstances

The Fair Work Commission used a range of economic indicators from the IMF, the Australian federal government, and the Reserve Bank to calibrate the raise, taking into account the situations faced by workers in different regions, industries and sectors. The Commission also cited an opportunity to address the needs of the country’s lowest paid workers without creating inflationary pressure or an adverse effect on employment.

After a 2.4% increase in 2016 and 3.3% in 2017, 2018’s 3.5% increase outpaces Australia’s 1.9% inflation rate and represents a 1.4% real rise in wages for those low paid workers - although unions had called for a more substantial raise of  7.2%.

Affected Workers

The minimum wage increase applies only to workers with pay rates set by the national minimum wage, or a modern award - or in some cases by a registered agreement. Practically, that criteria represents up to 2.3 million Australian workers - around 20% of the country’s workforce. The raise is designed to improve the living standards of Australia’s lowest paid and comes at a point of historically-low wage growth, but high growth in full-time employment.

Reaction

The Australian Council of Trade Unions (ACTU) has welcomed the FWC wage rise, but is pushing for further increases: their stated goal of a 7.2% rise would have represented an increase of $50 a week.

Some observers have raised concerns that the 3.5% rise carries a risk of actually reducing employment prospects, since employers may be unable to afford to hire lower paid employees or to offer existing employees additional shifts or overtime hours. Similarly, others have argued that Australia already has the world’s second-highest minimum wage rate (after France) and the rise might harm the competitiveness of Australian businesses on the world stage.

Implementation

Employers in Australia should prepare to implement the new minimum wage rates with their payroll departments. The Fair Work Commission normally takes up to 3 weeks to apply updates to the various awards used to pay Australian workers - and employers can do nothing until that step takes place.

Once the updates have been made, employers should receive an email informing them of the adjusted rates - employees who are unsure of their award category can use the Fair Work Commission’s online tool to determine their coverage.

To learn more about pay and tax in Australia, browse activpayroll’s dedicated Australia Global Insight Guide