Wages will rise by 3.5%, FWC orders

Wages will rise by 3.5%, FWC orders

A 3.5% across the board wage increase is on the way; Photo credit: Shutterstock

By Jim Wilson on 1 June 2018 A wage increase of 3.5% is on the way for all national- and modern-award covered minimum wage workers  following this morning’s Annual Wage Review decision by the Fair Work Commission. The decision will affect about 2.3m workers, which is approximately 18.4% of the national workforce. 

Minimum wages in modern awards will be increased by 3.5% from the first full pay period commencing on or after 1 July 2018.

From the first full pay period  or after 01 July 2018, the national minimum wage will be $719.20 a week  or $18.93 per hour, which is an increase of $24.30 per week to the weekly rate and 0.64 cents to the hourly rate. 

The national minimum wages for juniors, employees under training arrangements, and employees with a disability have also been increased by 3.5%.

The casual loading in modern awards will remain at 25% and the casual loading in the Business Equipment Award will be increased to 23%.

Calculation of the national minimum wage – weekly 


The current weekly national minimum wage (NMW) is $694.90.

The increase of 3.5 per cent is applied to the current weekly NMW.

$694.90 x (1+ (3.5/100)) = $719.22

To obtain the new weekly NMW, this rate is rounded to the nearest 10 cents.

$719.22 → $719.20

Calculation of the national minimum wage – hourly


The current hourly NMW is $18.29.

To calculate the hourly NMW, the new weekly NMW is divided by 38, based on a 38-hour week for a full-time employee.

$719.20 / 38 = $18.9263

To obtain the new hourly NMW, this rate is rounded to the nearest cent.

$18.9263→ $18.93

The NMW will increase by $24.30 per week ($719.20 – $694.90) or 64 cents per hour

($18.93 – $18.29).

Statutory objectives, workforce pay and economic considerations


Commenting on the reasons for the decision, the Commission noted that the number of workers who have their pay set by an award is about 2.3m people, which is about 22.7% of all employees. The proportion of workers paid at the adult national minimum wage rate is 1.9%. 

Having noted the numbers of workers affected by its annual review of wages, the Commission recited its statutory objectives which include promotion of social inclusion through increased workforce participation along with the relative living standards and needs of the low paid. Various economic considerations were also taken into account.

A healthy economy


The Commission noted that there has been “strong” employment growth of 355,200 workers over the year to April 2018, of which 265,000 were full time employees. Employment growth of over three per cent was recorded at the end of 2017 and, by early 2018, was “much higher” than at the time of the last review. It was also noted that the economy continued to grow with real GDP increasing by 2.4 per cent, consistent with a five year average. And that growth was broad-based too, with 16 out of 19 industries recording growth. Business profitability grew by 4.3% in 2017 and by 5.8% in the non-mining sector. The Commission also observed that inflation and wages growth remain low. 

Effects of pay rises


The Commission commented that “modest and regular” minimum wage increases do not result in “dis-employment effects or inhibit workforce participation”, and it pointed to research carried out by the Reserve Bank of Australia and to research carried out in the UK as supporting that view. 

Living standards


The Commission accepted the argument that the minimum rates of pay affect an employee’s capacity to engage in community life and the extent of his or her social participation. It added that higher minimum wages can also provide incentives to those not in the labour market to seek paid work. It also concluded that a threshold of two-thirds of the median adult full-time ordinary time earnings provides a suitable and operational benchmark for identifying who is low paid. 

For all these reasons, it was concluded by the Commission that it was appropriate to increase the national minimum wage by 3.5%. 

Reaction


Commenting on the decision, Joe Murphy, managing director - national workplace at Australian Business Lawyers and Advisors, told WorkplaceInfo that: “it’s the largest increase since 2010. Given that, the issues of wage stagnation and wages growth are political issues as we move into the campaign phase of the election. The ACTU and ALP will likely see that as an issue front and centre. I wonder if that was a subconscious issue on the minds of the Commission.” 

The NSW Business Chamber pointed out that the increase can be absorbed into existing over-award payments, as per the absorption clause in the applicable modern award.

Reaction from the Australian Council of Trade Unions was also swift.

ACTU Secretary Sally McManus commented: "this increase is a step in the right direction, and takes us closer to our goal of 60% of the median wage. The minimum wage should be pegged at 60% of the median wage. This is the level set by the OECD - that is what's required to ensure that every full-time worker in Australia can survive on their wage. All Australian workers need a pay rise, but none more so than the 2.3 million people who are now award-reliant. This 3.5% increase… will be a welcome reprieve for them but we will continue to fight for the restoration of a living wage that underpins a much fairer collective bargaining system. We have to change the rules on the minimum wage. People who have been forced into poverty by the inadequacy of this wage should not have to wait every year to see if they will be saved by the Fair Work Commission. The minimum wage should be set to keep pace with wages. Moving towards a Living Wage would help mitigate widening income inequality.” 

Disclosure: WorkplaceInfo and Australian Business Lawyers and Advisors are both owned by the NSW Business Chamber. 

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