Fair Work Minimum Wage Review Significantly Increases Minimum Wage Rates

The Fair Work Commission (FWC) announced an increase in the minimum wage rates when it handed down its minimum wage review decision on Wednesday, 15 June 2022.

Fair Work Commission president Iain Ross stated in the review decision that:

“Given the current strength of the labour market, the adjustments we propose to make will not have a significant adverse effect on the performance and competitiveness of the national economy.”

While the economy appears to be performing strongly, Business SA suggests this decision will cost South Australian business owners $518 million, placing enormous pressure on some industries that are still trying to recover from the significant disruptions caused by the COVID-19 pandemic. The FWC has attempted to alleviate some of the pressure by delaying some industry modern award increases until 1 October 2022.

A summary of the key wage increases that will apply from 1 July 2022 is as follows:

  • The national minimum wage rate will increase by 5.2%;
  • The minimum modern award wage rate will increase by 4.6%;
  • The national minimum weekly wage will be $812.60 per week, an increase of $40 per week; and
  • The national minimum hourly rate will be $21.38, an increase of $1.05 per hour.

Statutory framework of the FWC’s minimum wage review

The Fair Work Act 2009 (Cth) (the FW Act) requires the FWC to conduct and complete a review of the national minimum wage and modern award minimum wage each financial year, which it does through a review panel. The primary consideration for the review panel is to determine the amount of the variation, which is usually upwards.

The FWC conducts its review within the statutory framework of the FW Act, which includes consideration of:

  • the objects of the FW Act (section 3);
  • the modern award objective (section 134); and
  • the minimum wage objective (section 284).

In the context of a review, both the modern award objective and the minimum wage objective require the FWC to take into account a range of specific considerations, including;

  • various economic considerations;
  • relative living standards and the needs of the low-paid; and
  • promoting social inclusion through increased workforce participation.

Importantly, the FW Act also establishes procedural fairness requirements for the minimum wage review to ensure that all interested parties are provided with a reasonable opportunity to contribute by making submissions to the review.

Submissions for the FWC’s minimum wage review

The Federal Government, most state governments, the Australian Council of Trade Unions (ACTU), the Australian Chamber of Commerce and Industry (ACCI) and various other parties representing employers and employees interests, made submissions to the review panel of the FWC.

Overwhelmingly the submissions from these parties proposed an increase to the national minimum wage and the modern award minimum wage. However, some submissions argued that the FWC should not increase the minimum wage at all.

In its submission, the ACTU proposed a 5.5% increase to the national minimum wage and modern award minimum wage.

The ACCI, Australian Industry Group and several other employer bodies proposed more moderate increases to minimum wages between 2.5% and 3%.

In a submission from the new Albanese Labor Government, it was argued that the FWC should ensure that the real wages of low-paid workers did not go backwards to assist with the increased cost of living pressures.

FWC’s identification of the key considerations for the minimum wage review

The primary consideration for the review panel of the FWC was the key economic indicators. It carefully considered the differences in these economic indicators between last year and this year.

The review panel produced a table (below) which summarized the key differences in economic indicators between the 2020-2021 review and 2021-2022 review:

Indicator 2020–21 Review 2021–22 Review
CPI growth 1.1% over year to
March quarter 2021
5.1% over year to
March quarter 2022
Trimmed mean inflation 1.1% over year to
March quarter 2021
3.7% over year to
March quarter 2022
Unemployment rate 5.5% in April 2021 3.9% in April 2022
Persons employed 13 040 400 in April 2021 13 401 700 in April 2022
Non-mining business investment growth –3.0% over year to
March quarter 2021
5.3% over year to
March quarter 2022
WPI growth 1.5% over year to
March quarter 2021
2.4% over year to
March quarter 2022

The review panel identified the strengthening of the labour market and the sharp rise in the cost of living as the critical factors that should guide their decision for the 2021-2022 review.

The labour market performance has been strong despite the lingering impacts of COVID-19. Australia’s unemployment rate fell to 3.9% compared to 5.5% in April 2021 at the time of the last FWC review. Further improvement in the labour market, which is causing shortages in labour across Australia, is forecast to continue for the foreseeable future.

During last year’s minimum wage review, the CPI and the trimmed mean measure of inflation stood at 1.1% and 3.7%. Since that review, a sharp rise in the cost of living has occurred due to rising inflation, which has been well above forecasts. This was noted in the May 2022 Statement on Monetary Policy issued by the Reserve Bank Australia. It stated that:

“The outlook for inflation is materially higher than envisaged three months ago. Headline inflation is now expected to peak at around 6% in the second half of this year, partly driven by higher petrol prices and sharp increases in the cost of new dwellings.”

The review panel indicated that they were greatly influenced by the growing presence of these and other inflationary pressures in deciding the extent of the increase to the national minimum wage.

Other observations of the review panel in its decision concerning key changes to the economy over the last 12 months were:

  • The latest National Accounts for the March quarter of 2022 show that gross domestic product (GDP) grew by 0.8% in the quarter and by 3.3% over the year.
  • Severe flooding in parts of Queensland and New South Wales led to lower output in Mining and Construction.  According to the Budget, the direct economic cost of the floods was expected to reduce real GDP growth by around half a percentage point in the March quarter of 2022, largely due to reduced activity in the Mining, Agriculture, Accommodation and food services, Retail trade and Construction industries.
  • The labour market has rebounded strongly from the impacts of the pandemic. The unemployment and underemployment rates have been at their lowest for some time, and the participation rate is at its highest in more than 10 years. In fact, the unemployment rate has not been this low since 1974.
  • Total company gross operating profits increased by 25.3% over the year to the March quarter of 2022, which is above the 5-year and 10-year averages
  • The main contributions to the sharp increase in inflation in the quarter were increases in new dwelling purchases by owner occupiers (5.7%), due to rising construction costs and fewer grant payments, and Automotive fuel (11.0%), driven by the Russian invasion of Ukraine.
  • Households will likely face increases in their power bills as electricity and gas prices increase.

FWC’s minimum wage review decision for 2021-22

An interesting aspect of the review panel’s determination was the decision to impose different increases to the national minimum wage rate (an increase of 5.2%) and the minimum modern award wage rate (an increase of 4.6%).

The review panel decided to decouple these minimum wage rates and provide a higher increase to the national minimum wage rate because:

“…the present circumstances warranted an approach which affords a greater level of support to the low paid while seeking to constrain inflationary pressures”.

The increased national minimum wage rate and the minimum modern award wage rate will operate from 1 July 2022. However, in recognition of the continued impact of COVID-19 on various industries – where there were large numbers of Job Keeper employers – the review panel has delayed the impact of its decision for some industry awards. Industries that use the below awards will have until 1 October 2022 to prepare for the increase.

  • Aircraft Cabin Crew Award 2020
  • Airline Operations – Ground Staff Award 2020
  • Air Pilots Award 2020
  • Airport Employees Award 2020
  • Air services Australia Enterprise Award 2016
  • Alpine Resorts Award 2020
  • Hospitality Industry (General) Award 2020
  • Marine Tourism and Charter Vessels Award 2020
  • Registered and Licensed Clubs Award 2020
  • Restaurant Industry Award 2020.

If you require assistance in preparing for the wage variations that will apply to your business from the start of the new financial year, please get in touch with one of our employment law experts.

For more information, please contact:
Ben Duggan

Ben Duggan
Director
p.  +61 8 8124 1881
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this article, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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