New financial year. New wage increases. Find out how the Annual Wage Review affects you.

New financial year. New wage increases. Find out how the Annual Wage Review affects you.

On 1 July 2015 everyone being paid the minimum wage or minimum award wage will receive a pay increase. This increase is determined at the Fair Work Commission’s (“FWC”) Annual Wage Review (“AWR”). Groups of employees traditionally paid minimum wage or minimum award wage include retail and hospitality staff, cleaners, childcare workers, farm labourers and factory workers. Over 1.8 million Australians are paid the minimum wage and are affected by the Annual Wage Review. This includes many lawgradinpink readers, who are studying at University find themselves working in retail or hospitality while they study.

What is the Annual Wage Review?

The Annual Wage Review is a determination made by the Fair Work Commission at the end of each financial year on the national minimum wage (s285(1) Fair Work Act 2009 (Cth)). The determination is made in the first week of June. The draft national minimum wage order is then released and finalised by the end of the financial year. The new minimum wage comes into effect on 1 July. The determination is made by an Expert Panel. The two main roles of the Expert Panel at the Annual Wage Review are to:

1.       Review and vary award minimum wages; and

2.       Review and vary national minimum wages (s285).

Who is on the Expert Panel?    

The Expert Panel is made up of seven Members of the Fair Work Commission. At least three Members must be “experts” in workplace relations, economics, social policy, business, industry or commerce (s620(1)). The Expert Panel follows any directions made by the FWC President on how to conduct the AWR (s582). Decisions on the minimum wage are made by majority (s620(4)). The 2014/2015 AWR Expert Panel consisted of:

1.        Justice Ross (President);

2.       Senior Deputy President Watson;

3.       Senior Deputy President Harrison;

4.       Commissioner Hampton;

5.       Mr Anthony Cole (member of the Board of the Commonwealth Superannuation Corporation, a member of the Advisory Board for the NT Treasury Corporation and a Director of Australian Ethical Investors);

6.       Professor Sue Richardson (Principal Research Fellow at the National Institute of Labour Studies); and

7.       Mr Stephen Gibbs (director for Hastings Funds Management Ltd and Ecosystems Investment Management Pty Ltd).

What will the increase be on 1 July 2015?

The new national minimum wage is $656.90 per week, calculated on the basis of a 38 hour working week. The minimum hourly rate is $17.29 per hour. This is an increase of 2.5% on the previous minimum wage, and increases the weekly rate by $16, and the hourly rate by 42 cents.

It should be noted that different minimums apply to junior employees, employees who are in a training arrangement such as trade apprentices, and employees with a disability. Junior employees must be paid a percentage rate of the minimum wage. For example, as of 1 July 2015, a 16 year old must be paid at least 47.3% and a 20 year old must be paid at least 97.7% of the minimum wage.

How did the FWC come to this decision?

The Expert Panel conduct extensive research and engage in a comprehensive consultation process in the months leading up to June. The objectives of the Fair Work Act, and in particular, the objectives of minimum wages in s284 must be taken into account:

a.  The performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth; and

b.    Promoting social inclusion through increased workforce participation; and

c.    Relative living standards and the needs of the low paid; and

d.    The principle of equal remuneration for work of equal or comparable value; and

e.  Providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability.

Broadly, the Panel assesses changes in economic and social data from year to year and then determines how this informs the statutory criteria.

In the most recent AWR, the Panel considered the following economic factors:

1.       Real GDP growth remains below trend over the past two years;

2.       Labour productivity rose by over 1.6 per cent over the year;

3.       No evidence of particular corporate stress as bankruptcy rates fell, business entry rates rose, and business exit rates were lowered;

4.       Consumer Price Index increased by only 1.3 per cent over the year;

5.       Underlying inflation is at 2.4%, within RBA medium-term target band;

6.       There has been a continuous fall in aggregate wages growth. Real net disposable income has increased by less than GDP from the second half of 2011;

7.       GDP has continued to rise while real net disposable income has grown much more slowly;

8.       Employment growth remains subdued, growing 1.6 per cent over the year;

9.       Unemployment rate has steadily increased to 6.1 per cent in April 2015;

10.    There has been growth in unemployment, under-employment, long-term unemployment and youth unemployment, all of which are signs of under-utilisation of the workforce;

11.   Stronger economic growth and CPI is predicted for the coming two years; and

12.   The outlook for the Australian economy remains generally positive.

The Panel also considered social factors including:

1.       Income inequality remains at relatively high levels compared with the past;

2.       The level of financial stress rose more for low-income paid households than for all employee households in the GFC aftermath;

3.       Limited data in recent years shows a small increase in financial stress for low-income households; and

4.       Overall, the relative living standards of minimum wage employees has improved slightly the past year or two as inequality among all employees has stabilised and indicators of unmet need among the low-paid have improved.

In weighing the economic and social factors with the relevant considerations under the Fair Work Act, the Panel acknowledge that there is often tension between economic, social and other considerations. The Panel had a particular focus on the low growth in consumer price and aggregate wages over the past year, as they have a direct relationship with relative living standards and the needs of the low-paid. A moderate increase of 2.5% was therefore considered appropriate. 

How does the wage increase affect you?

If you are an employee currently being paid minimum wage or minimum award wage, your employer should automatically increase the amount you are paid to the new minimum. Make sure you check your first new financial year pay slip to make sure you have been paid at the new minimum rate. The minimum wage is a National Employment Standard which cannot be altered by awards or enterprise agreements. An employer who fails to pay the minimum wage is committing an offence under section 293 of the Fair Work Act 2009 (Cth).