Amidst a backdrop of record-low wage growth, the Fair Work Commission’s Minimum Wage Panel today increased all Modern Award minimum wage rates and the Federal Minimum Wage by only 2.4%, saying they hoped the modest increase would promote greater social inclusion, assist low paid employees and increase workforce participation.

From the first pay period commencing on or after 1 July 2016, the national minimum wage will increase to $672.60 per week, or $17.70 per hour.

In comparison, annual CPI is currently running at 1.3%, Ai Group had proposed a “modest” increase of 1.6% a week and ACCI had proposed a minor increase of 1.2%. Those groups claimed that excessive minimum wage increases could result in many low paid workers losing their jobs. The ACTU had asked for an increase of about 4.6% for the lowest-paid workers.

The FWC’s panel indicated the increase was a result of historically low levels of inflation and wages growth. The panel also indicated that they hoped the modest increase would be more compatible with collective bargaining.

What this means for you

Modern Awards: Any business that applies Modern Award rates will need to increase those rates to comply with today’s decision.

Annualised Salaries and Individual Flexibility Agreements: If you have implemented Individual Flexibility Agreements, you will need to reassess those agreements to ensure employees remain “better off overall” when compared to the newly increased Modern Award rates. Employers who use annualised salary arrangements under Modern Awards should also check the Award requirements.

Enterprise Agreements: If you have an Enterprise Agreement, you will need to ensure the minimum base rates in the EA remain at least equal to the new Modern Award rates. If not, EA rates will need to be increased to match the Modern Award. The new Modern Award rates will also form the baseline for “better off overall” testing new EAs.

Allowances: Today’s decision will impact allowances as well as base rates. A number of Modern Award allowances are expressed as a percentage of the “standard rate”, which is linked to the wage rate of a specific classification in the award. These allowances will therefore increase in line with the increase in the standard rate. Expense related allowances will increase in line with the relevant CPI index.

High Income Guarantee: Although not directly related to today’s decision, the High Income Threshold will also increase from 1 July. Any employers who sidestep Award conditions by using High Income Guarantees to will need to check their agreed terms, to ensure they remain compliant and above the new threshold. If guarantee levels fall below the threshold, or lapse for another reason, minimum entitlements will revert to those in the Award (including, for example, overtime and penalty rates).