How will minimum wage increase affect employers?

The Minimum Wage Panel of Fair Work Australia recently released its decision on the Annual Wage Review. The decision increases minimum wage rates by 3.4% and the default casual loading for award and agreement free employees from 21% to 22%. Subject to applicable transitional arrangements (discussed below), these changes will take effect in the first full pay period that starts on or after 1 July 2011.

Andrew Tobin and Damon King from HopgoodGanim Lawyers discuss the practical detail and implications for employers.

What you need to know

• Changes to wage rates and casual loading take effect 1 July 2011
• Relief for Queensland businesses affected by bad weather and flooding earlier this year has been declined
• Employers are encouraged to review their industrial relations arrangements for compliance
• Failure to comply may result in underpayments, employee complaints, prosecution and penalties

Adjustments explained

Employers need to ascertain now whether, and how, their industrial relations arrangements are affected by the decision to ensure that they comply with the minimum safety net requirements. Failure to do so may result in wage underpayments, employee complaints, prosecution by the Fair Work Ombudsman and exposure to substantial civil penalties.

The details of the decision, with immediate application from 1 July 2011 (subject to transitional arrangements), are these:

• All modern award rates of pay increase by 3.4%, with flow-through proportionate increases to hourly minimum wages and annual salaries. The increase will apply to all workers in the national system including juniors, trainees and apprentices, differently abled workers and those paid under piece work arrangements. For example, the decision represents increases of between $20.60 and $26.04 a week in ordinary time earnings for full-time clerical employees depending on their respective award classification.
• The national minimum wage for adults working full time 38 hours per week increases from $569.90 to $589.30, ie, by $19.40 per week.
• The minimum hourly rate for permanent national system employees increases from $15.00 per hour to $15.51.
• The minimum hourly rate for casual employees to whom a modern award applies continues to be subject to the modern award standard casual 25% loading.
• The default casual loading for award/agreement free casual employees increases from 21% to 22%. The minimum hourly rate for award/agreement free casual employees increases from $18.15 per hour to $18.92 per hour.
• The decision also applies to employers and to any of their employees whose terms and conditions of employment are not regulated by a modern award, but to whom transitional instruments apply. These instruments may include 'old state awards', and also former state-based Notional Agreement Preserving State Awards (NAPSAs) and collective agreements.
• The decision has additional impacts for sole traders or partnerships in Queensland who have trainees and apprentices working under formal training arrangements. Wages for these workers have now been brought into line with the national safety net, having previously been regulated by reference to the Queensland minimum wage in 2009 which provided a lower wage level than the national minimum wage (a difference of $1.70 per week). The result is that these workers will become entitled to a one-off upward adjustment in their base wage, plus the 3.4% uniform wage adjustment.
• Two special national minimum wages have been fixed for employees with a disability whose employment is award/agreement free:
  - For those whose productivity is not affected by their disability, the national minimum wage will be the same applicable to adults generally;
  - For those employees with a disability that affects their productivity, they will be subject to an assessment under the Supported Wage System (the detail of which is included in a schedule to most modern awards and can also be found at http://www.jobaccess.gov.au/).

Implications - implementing the changes (and transitional arrangements)

The impact of the changes will depend on three things: the industrial arrangements currently applying in your workplace, eg, whether they are based entirely on the current minimum safety net or any one of the various kinds of transitional instruments; current wage rates prescribed in or being paid under those arrangements; and the transitional arrangements prescribed by modern awards or by the Fair Work (Transitional Provisions and Consequential Amendments) Act.

Working arrangements not regulated by any award or other adjusted transitional instrument are subject to the national minimum wage order from 1 July 2011, and for casual employees, the new default 22% casual loading.

Practically speaking, existing higher rates of pay will be capable of absorbing the increase to the national minimum wage, so that in many of these situations no pay adjustment will be necessary. It is possible, however, that in some cases the terms of applicable common law contracts might require wage adjustments. Similarly, employers of employees to whom a modern award or adjusted transitional instrument applies - if they were paying above modern award rates - will be able to absorb the higher award/instrument rates into their current rates of pay, in most cases. No pay adjustments will be normally required in these situations.

National system employers of employees to whom a modern award applied from 1 January 2010 (or, in the case of former state-based employers such as sole traders and partnerships to whom a modern award applied from 1 January 2011) will not immediately have to pay at the full modern award rate if, immediately before those respective dates, the then applicable pay rate under a former industrial instrument was lower.

These former instruments include, for example, 'old' federal awards, 'old state awards', former state-based NAPSAs and also state-based collective agreements. Employers in this situation have the benefit of the transitional arrangements prescribed by modern awards for the phasing in of higher award wages than those that previously applied, at the rate of 20% per year of any difference, until 1 July 2014.

Employers bound by an enterprise agreement made since 1 January 2010 are obliged (in relation to employees to whom the agreement applies) to keep pace with modern award base rates of pay or the national minimum wage, although the precise impact of the decision will depend on the terms of the agreement. An enterprise agreement cannot undercut the applicable modern award base rate of pay or, if there is no modern award capable of covering the employees in question, then the national minimum wage. Provisions in enterprise agreements dealing with such things as loadings, monetary allowances and penalty rates may continue to be applied 'as is' until the agreement is terminated. The same considerations also apply to any kind of individual or collective statutory agreement made before 1 January 2010.