Minimum wage increase 2023: wages rise by 8.6% for lowest paid

By Alison Baker

The Fair Work Commission’s Expert Panel for annual wage reviews has now published its Annual Wage Review 2022-23. In this article, we report on what this will mean for employers.

The outcome of the Review is that:

• the National Minimum Wage (NMW) will be $882.80 per week (up from $812.60 per week) or $23.23 per hour (up from $21.38 per hour), which amounts to an 8.6% increase; and
• modern award minimum wage rates will increase by 5.75%.

These changes will take effect from the first full pay period after 1 July 2023.

A ‘somewhat technical matter’

The Fair Work Commission decided that the rate of increase of the NMW would be 5.75%, the same as the increase to minimum wage rates in modern awards.

However, the Panel also decided that it would no longer align the NMW with the C14 rate in the Manufacturing and Associated Industries and Occupations Award 2020, as this was ‘only ever intended to constitute a transitional entry rate for new employees’, and does not constitute an adequate safety net for employees.

Instead, the NMW will now be aligned with the C13 classification wage rate, which is higher than the C14 classification. The effect of this change is that the 5.75% increase this year applies to a higher base rate, meaning the increase to the NMW is effectively 8.6%.

Rationale for increase

The Panel downplayed the significance of the 8.6% rise to the NMW, estimating that this rate applies to just 0.7% of all Australian employees. On the other hand, the 5.75% increase to modern award minimum wages represents a slight increase from last year’s rise of 4.6%, which the Panel attributes to cost of living pressures that have been exacerbated in the past 12 months, causing stress to households.

Nonetheless, the Panel acknowledged that the 5.75% increase to modern award minimum wages would not maintain the real value of these wages or account for the erosion of real wages that has occurred recently due to inflation. Despite this, it was determined that this increase was ‘the most that can reasonably be justified in the current economic circumstances’, due to the challenging combination of low unemployment and high inflation.

The Panel claimed that it would be possible to return to a scenario where award minimum wages maintain their real value once the nation returns to a lower inflationary environment.

What does this mean for employers?

It is estimated that one in five Australian employees are paid in accordance with minimum wage rates in modern awards. The Panel’s decision means that employers who pay their employees at minimum wage rates pursuant to the NMW, a modern award, or other industrial instrument, will be required to increase their employees’ pay in the first pay period on or after 1 July 2023.

Employers who pay their employees under an industrial instrument, such as an enterprise agreement, should review the rates under that instrument to ensure that they are equal to or above the applicable minimum wage rates.

Employers who pay their employees above the minimum wage rates by using set-off clauses or annualised wage arrangements may be able to absorb the increases without making any changes. However, this should be carefully reviewed and considered. For any questions about how the changes apply to your organisation, contact a member of our Employment & Workplace Relations team.

This article was written with the assistance of Darcy Keogh, Law Graduate.