By Daniel White, Partner, Simon Rogers, Senior Associate, and Jacob Fowler, Law Graduate

What happened?

On 2 June 2023, the Fair Work Commission (FWC) announced their decision for this year’s Annual Wage Review. The effect of this review is to increase the rates of pay contained in the Modern Awards (and thus the National Minimum Wage).

The National Minimum Wage is the wage paid to employees in the national industrial relations system, who are not covered by a Modern Award or enterprise agreement. Historically, this wage rate has been aligned with the lowest Modern Award classification (C14). The Review Panel determined to end this alignment, and instead align the National Minimum Wage with a higher Modern Award classification – C13.

The FWC has taken the extraordinary measure of significantly increasing the National Minimum Wage and Modern Award minimum wages by 5.75% with the increase to take effect from the first full pay period on or after 1 July 2023. As a result of the change of alignment described above, the effect of this year’s minimum wage decision is twofold. First, Modern Award rates have increased by 5.75% – meaning that from the first full pay period on or after 1 July 2023, each Modern Award classification minimum rate will increase 5.75% above its current level. Second, the National Minimum Wage (payable to anyone not covered by a Modern Award or Enterprise Agreement) will now align with the C13 classification, resulting in an effective 8.6% increase from its current level.

The significance of this increase is considerable given that the Annual Wage Review 2021-22 already increased the National Minimum Wage by 5.2% and the Modern Award minimum wages by up to 4.6%. Thus, over the last two years, the National Minimum Wage has increased by 13.8% and Modern Award minimum wages have increased by up to 10.35%.

This is also the largest increase to wages since the Fair Work Act 2009 (Cth) (FW Act) commenced on 1 July 2009.

What does this mean for employers?

Employers whose employees are not covered by a Modern Award or Enterprise Agreement (and who pay their employees in accordance with the Minimum Wage) will need to ensure that they pay the 8.6% increase from the beginning of their first full pay period commencing on or after 1 July 2023 (with commensurate increases to overtime rates etc).

Employers whose employees are covered by the Modern Award (and paid in accordance with it), will need to ensure that they pass on the 5.75% increase from this same date (with commensurate increases to overtime rates etc).

Given the cumulative increases over the past two years (up to 13.8%), the effect of this year’s review may extend beyond those employers who pay their employees in accordance with an enterprise agreement, where the minimum rates of pay contained in the enterprise agreement align with the minimum rates in the underpinning Modern Award. Employers whose employees are covered by an enterprise agreement will recall the BOOT assessment which was undertaken at the time of its approval. Whilst such an agreement is not capable of being re-assessed under the new BOOT scheme, they are still subject to certain ‘safeguards’ within the FW Act, in particular, the one provided by section 206.

Section 206 of the FW Act provides that, where an employee is covered by an enterprise agreement (and would otherwise be covered by a Modern Award), and the base rate of pay in the enterprise agreement is lower than the corresponding base rate of pay in the otherwise applicable Modern Award, then the base rate in the enterprise agreement must (in effect) be increased to align with the applicable base rate in the Modern Award. This may mean that the rates in the enterprise agreement will need to increase to reflect the increase to the rates in the Modern Award, particularly where the enterprise agreement rates were only slightly above the Modern Award rates at the time the enterprise agreement was made. Failure to do so may result in the employer inadvertently breaching the terms of the enterprise agreement (giving rise to underpayment and possible civil penalties).

Where, under the terms of an enterprise agreement, an employee is paid an ‘all-purpose rate’, depending on how that rate is structured and made up, section 206 may have no application. Careful consideration must be given to this, and further advice sought should your enterprise agreement contain such a payment structure (and you actually pay employees in accordance with that rate – i.e., employees’ salaries have not been substantially uplifted by way of an Individual Flexibility Arrangement or under their contract of employment).

What can be done?

Employers need to urgently review their obligations under applicable Modern Awards, come 1 July 2023, these rates will increase by 5.75%. Additionally, employers should consider whether the rates of pay contained in applicable enterprise agreements may need to be adjusted, in light of the last two years’ consecutive and significant increases to minimum Modern Award rates of pay.

Employers also need to remember that from 1 July 2023 the minimum statutory superannuation guarantee contribution rate for employees will increase from 10.5% to 11.0%.