Minimum Wage Increase 2020

Minimum Wage Increase

Last week, we published an article discussing the progress of the annual wage review by the Fair Work Commission (See HR Legal’s article: ‘Will there be a minimum wage increase in 2020?’)

The Fair Work Commission’s Expert Panel finalised its decision about this year’s review earlier than anticipated and has now announced its decision to order an increase to the national minimum wage and modern award minimum wages of 1.75%.

The new national minimum wage will be $753.80 per week or $19.84 per hour. This constitutes an increase of $13.00 per week to the weekly rate, or 35 cents per hour to the hourly rate.

This rate is substantially lower than the increase which was ordered last year of 3.0%, which is of course largely attributable to the impacts of the COVID-19 pandemic on the Australian economy.

The increase is lower than the latest consumer price inflation figure of 2.2%.

The increase

The Expert Panel considered various submissions from interested parties. The Australian Government urged the Expert Panel to adopt a “cautious approach” to the annual wage review but did not propose a specific quantum increase. This is echoed by employer groups who are advocating for a 0% wage increase, or otherwise staggered increases for certain employers and employees due to COVID-19. Conversely, the Australian Council of Trade Unions argued that the Expert Panel should deliver a 4% increase, particularly given the Government’s provision of wage subsidies.

In making its decision, the Expert Panel acknowledged the significant impact of the COVID-19 pandemic and the measures in response to contain the spread of the virus on the way we work, on society and on the economy. The Panel also had to balance the perspective of employees, as well as employers.

It said that no increase would mean that the living standards of low-paid award-reliant employees would fall, and any increase that was less than increases in prices and living costs would further disadvantage those employees and put them at greater risk of moving into poverty. On the other hand, a significant increase would pose a risk of disemployment and could affect employment opportunities, particularly for lower skilled and young workers.

Ultimately, the Expert Panel found that a modest increase of 1.75% – that is substantially lower than last year’s increase – was appropriate.

Also the Expert Panel noted that while the impact of the pandemic has been felt across the Australian economy, the impact has not been consistent across all sectors and some industries have been more substantially affected than others. This impacted the Panel’s decision about the timing of the increase.

Timing of the increase

Historically, any increases to the national minimum wage and modern award minimum wages have taken effect from the first full pay period on or after 1 July.

However, employer groups encouraged the Expert Panel to activate the ‘exceptional circumstances’ clause in the Fair Work Act 2009 to delay the operative date for any increase until 15 July 2020, or otherwise stagger increases for certain employers and employees due to COVID-19.

In considering the timing of the increase, the Expert Panel analysed data from the ATO and the ABS and determined that the impact of COVID-19 had not been consistent across all sectors of the economy.

On this basis, in a first since the modern award system was introduced in 2010, the Expert Panel determined different operative dates of the wage increase for different groups of modern awards:

The modern awards in Group 1 cover industries less affected by the pandemic, including frontline health care and social assistance workers, teachers and childcare workers, and workers engaged in other essential services, who have continued working throughout the pandemic.

Minimum wages for modern awards in Group 1 will increase by 1.75%, as normal from the first full pay period on or after 1 July 2020.

The modern awards in Group 2 cover workers adversely impacted by the pandemic, but not to the same extent as the sectors covered by the Group 3 awards. This includes construction workers, manufacturing workers, and workers from a range of other industries.

The Expert Panel was satisfied that there were exceptional circumstances that allow a delayed operative date for the 1.75% increase from the first full pay period on or after 1 November 2020.

The modern awards in Group 3 cover workers which have been most adversely affected by the pandemic, such as those in accommodation and food services, arts and recreation services, aviation, retail, and tourism.

The Expert Panel was satisfied that there were exceptional circumstances that allow a delayed operative date for the 1.75% increase from the first full pay period on or after 1 February 2021.

What Should You Do?

Employers must satisfy the new minimum payment obligations for all relevant staff from the operative date in their industry and modern award/s. This includes for an employee for whom the employer receives the JobKeeper subsidy.

Ahead of the increase, employers should carefully review their wage arrangements and implement the necessary wage increases to ensure minimum wage rates are at least commensurate with the underpinning modern award.

Employers paying above-award payments should also review such arrangements to ensure that they are high enough to accommodate the increases (provided they are also supported by the necessary individual flexibility or other agreements).

Further, as a minimum, employers must continue to provide the minimum 9.5% superannuation contributions to the employees’ complying funds, calculated against Ordinary Time Earnings, to avoid liability to pay the Superannuation Guarantee Charge.

Finally, employers should consider any implications of the increase to minimum wages for employees who have been issued JobKeeper enabling stand down directions or agreements.