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Industrial and Employment Law Alert: Fair Work Australia increases national minimum wages (again): Practical details and implications for employers - 5 June 2012

Following its third Annual Wage Review, the Minimum Wage Panel of Fair Work Australia released its decision to increase minimum wage rates by 2.9 percent on 1 June 2012.

This is the third adjustment made to minimum wages in modern awards and the national minimum wage order since the current industrial relations system commenced on 1 January 2010.

Here, partner Andrew Tobin, associate Damon King and solicitors Dominique Lamb and Troy Wild outline the main changes introduced by this decision and explain the practical implications for employers.

Key points

  • Subject to applicable transitional arrangements outlined below, the changes to the minimum wage will take effect in the first full pay period that starts on or after 1 July 2012.
  • The increase to the minimum wage of 2.9 percent is less than the 3.4 percent handed down last year, which increased the minimum weekly wage by $19.40, and less than the $26 weekly increase awarded in 2010 (which came off the back of the 2009 pay freeze).
  • Despite lobbying from unions and employer groups, the Minimum Wage Panel decided not to make any provision for relief for cost increases associated with the carbon tax. It also decided not to discount this year's increase for the carbon price compensation package.
  • Employers will now need to determine whether and how, if at all, their industrial arrangements are affected by the decision to ensure they comply with the minimum safety net requirements. Failure to do so may result in wage underpayments and potential prosecution by the Fair Work Ombudsman, and exposure to substantial civil penalties.

The main changes introduced

There are a number of key changes that will have immediate application from 1 July 2012 (subject to transitional arrangements):

  • All modern award rates of pay increase by 2.9 percent, 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, differently abled employees and those paid under piece work arrangements. Wages in the National Training Wage Schedule will also increase by 2.9 percent. As an example, the decision represents increases of between $18.17 and $25.16 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 $589.30 to $606.40 ($17.10 per week).
  • The minimum hourly rate for permanent national system employees increases from $15.51 per hour to $15.96.
  • The minimum hourly rate for casual employees to whom a modern award applies continues to be subject to the modern award standard casual 25 percent loading.
  • The default casual loading for award/agreement free casual employees increases from 22 percent to 23 percent. The minimum hourly rate for award/agreement free casual employees increases from $18.92 per hour to $19.63 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 former State-based NAPSAs and collective agreements.
  • The decision has additional impacts for sole traders or partnerships in Queensland that have trainees and apprentices working under formal training arrangements. The result of the decision is that adult apprentices should not receive less than the national minimum wage.
  • Two special national minimum wages have been fixed for differently abled employees whose employment is award/agreement free:
    - For those whose productivity is not affected by their disability, the national minimum wage will be $606.40 per week, or $15.96 per hour based on a 38 hour week.
    - Employees with a disability that affects their productivity 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 (www.jobaccess.gov.au).

Implementing the changes

The impact of the changes on your workplace will depend on three factors:

  1. The industrial arrangements currently applying in your workplace (for example, whether they are based entirely on the current minimum safety net or any one of the various kinds of transitional instruments)
  2. Current wage rates prescribed in or being paid under those arrangements
  3. The transitional arrangements prescribed by modern awards or by the Fair Work (Transitional Provisions and Consequential Amendments) Act Working arrangements that are not regulated by any award or other adjusted transitional instrument are, from 1 July, subject to the national minimum wage order and, for casual employees, the new default 23 percent casual loading. Practically speaking, existing higher rates of pay will generally be able to absorb the increase to the national minimum wage so that in many (if not most) 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, in most cases, be able to absorb the higher award/instrument rates into their current rates of pay. No pay adjustments will normally be 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 (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 State-based collective agreements. Employers in this situation have the benefit of the transitional arrangements prescribed by modern awards for phasing in higher award wages than those that previously applied, at the rate of 20 percent per year of any difference, until 1 July 2014.

Employers bound by an enterprise agreement made since 1 January 2010 are obliged, for 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, the national minimum wage. Provisions in enterprise agreements dealing with such factors 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.

For more information or assistance applying the annual wage review decision in your workplace, please contact HopgoodGanim's Industrial and Employment Law team.