National Minimum Wage Increase FY 2024
By Paolo, 05.06.2023
On the 4th of June 2023, the Fair Work Commission completed its review of next year’s minimum wage and announced the largest increase of the National Minimum Wage to date. The National Minimum Wage and Award Wages will increase for the 2024 Financial Year to the following:
- 8.6% increase applicable to the National Minimum Wage, raising it from $21.38 per hour to $23.23 per hour;
- 5.75% increase to the National Minimum Wage applicable for Modern Awards and Enterprise Agreements’ wages.
Casual employees will still receive an additional 25% Casual Loading.
The increase for employees earning minimum wages applies from the first full pay period starting on or after 1 July 2023.
Employees working under any of the 122 Awards will also receive the increase at the same time.
Fair Work Australia is currently updating the Pay Tools with the new rates. The FY 2024 Pay Tools will be available by July 2023.
What is the National Minimum Wage
The National Minimum Wage is the employee’s base rate of pay for ordinary hours worked.
The National Minimum wage is the base rate applicable to award or agreement-free workers. The Award National Minimum Wage instead, is the Level 1 pay rate applicable to workers classified under the award that covers their industry or occupation. An employee cannot be paid less than their applicable minimum wage, even if they agree to it.
It is estimated that about 2.75 million Australian Workers are currently paid either the National Minimum Wage or an Award wage.
The National Minimum Wage is reviewed each year by the Fair Work Commission. Once the review is completed, a National Minimum Wage Order is issued. This generally applies from the first full pay period on or after the 1st of July.
The National Minimum Wage Revision includes rates applicable to all types of workers, including:
- Adult employees;
- Junior employees;
- Junior or Adult trainees and apprentices;
- Employees with a disability.
Current economical situation
The increase of 8.6% of the National Minimum Wage is the highest to date, keeping Australia at the top of the world’s minimum wages.
In making this decision, the Fair Work Commission aimed to adjust the National Minimum Wage and align it with a higher Award wage classification. The National Minimum Wage has always been aligned with the lowest Award Wage classification C-14. This year’s increase will align it with C-13 rates.
The goal of the Australian Government is to help people paid minimum wages cope with the ongoing increased cost of living. Taking into consideration the 7% current inflation rate (a key area of discussion in this year’s Federal Budget). The Australian Government urged the Fair Work Commission to increase low-paid wages to cope with the current socio-economic environment.
The 5.75% Award Wages increase, although the highest in history, is still the result of a compromise between the 3.8% rate recommended by some of the key Business Groups and the 7% sought by the Australian Council of Trade Unions (ACTU) to match the current CPI.
“This is an absolutely essential increase for all of the people in Australia who are struggling so hard at the moment just to survive, to pay their rent, to pay their groceries, to pay all of the basics”
Sally McManus – Secretary Australian Council Trade Unions (ACTU)
The National Minimum Wage and Award Wage’s latest increases follow the 15% pay rise for employees classified under the Aged Care Award announced in May 2023.
The increase is set to benefit the small group of workers paid Minimum Wages (about 0.7% of the Australian Working population) and an additional 5.75% of workers paid Award wages.
Whilst the Fair Work Commission has publicly stated that the increase will only represent a modest contribution to total wages growth and should not push an increase in the cost of living, Business representatives expressed their concerns about the additional cost burden, particularly for small businesses, who are traditionally the ones paying minimum wages to their workers.
Paired with the additional rise of the Superannuation statutory rate from 10.5% to 11%, these additional employment costs may cause further unemployment, with small business employers finding more and more difficult to afford staff.
“This large wage increase comes at a time when a growing proportion of businesses (about one in four employers) have indicated to us that they will shed staff in the next three month”
Daniel Hunter – Chief Executive Business NSW
What do these payroll changes mean for employers?
Australian Employers should start planning for these changes and take appropriate action to ensure they maintain compliance and have the required cash flow to support this new surge in employment costs.
It is important for businesses to conduct regular performance reviews and business planning activities, including:
- Conducting a comparison review between payroll costs and prices of services rendered. If required, increasing the cost of their services in order to maintain the required Gross Profit and still run their business at a profit;
- Performing a wage audit to ensure all their workers (especially the ones paid on Salary packages) are still paid the correct award rates or above;
- Forecasting additional costs and making sure the appropriate cash is set aside to cover quarterly obligations like PAYGW and Superannuation;
- Review their payroll system settings and make sure they are updated as per all the changes starting on 1st July 2023. Businesses using split systems that track time worked and process payroll, should perform a comprehensive review and ensure the payroll information still integrates correctly and is updated across all their systems.
- And finally, have a communication plan in place that includes both how to notify their workers about the changes as well as their customers in case of a price increase for their products and services.
The 2024 Financial Year once again brings a new surge in employment costs putting both business profitability and cash flow at risk.
With a large number of businesses still recovering from the impact of the COVID Pandemic, small businesses must again find a way to survive.
Small Businesses should seriously consider outsourcing their financial responsibilities to a registered (and knowledgeable) professional that can help them with understanding compliance requirement changes, effectively managing their costs and maintaining profitability.
References
https://www.fwc.gov.au/documents/resources/annual-wage-review-2022-23-decision-announcement.pdf
Disclaimer
This blog and attached resources are of general nature designed for informational and educational purposes only. They should not be construed as professional financial advice for your individual business. Should you need such advice, consult a licensed financial or tax advisor.
