National minimum wage to increase by 3.5% from 1 July 2018

In its decision, the Fair Work Commission ordered an increase to the national minimum wage and modern award minimum wage rates of 3.5%. Australia's minimum wage will increase by $0.64 per hour to $18.93 per hour or $719.20 per week. This exceeds last year's increase of 3.3% and is substantially more than the 1.8% increase that the Australian Industry Group sought before the Fair Work Commission (but far lower than the 7.2% increase that the ACTU campaigned for). The increases will be effective from the first full pay period on or after 1 July 2018.

The wages of approximately 22.7% of all employees in Australia are determined by a modern award. The Fair Work Commission's decision will therefore affect a significant number of businesses in Australia. Employers should plan immediately for the minimum wage increases if they have not already, including with respect to existing enterprise agreements, enterprise bargaining processes and individual flexibility arrangements.

Existing enterprise agreements

As required under the Fair Work Act, employers will need to make sure the base rates of pay under existing enterprise agreements payable to employees do not fall below applicable base rates of pay under applicable modern awards and adjust rates as required. Significant penalties may apply to employers who fail to comply with these requirements.

Enterprise bargaining processes

The Fair Work Commission's decision may also affect enterprise bargaining processes. Minimum wage rates (and other payments and benefits) under enterprise agreements that are currently being negotiated may need to be updated to ensure agreements will satisfy all requirements for approval, including the better off overall test (BOOT).

Individual flexibility arrangements

The hike in minimum wages rates ordered by the Fair Work Commission may also affect employees covered by individual flexibility arrangements. Employers may need to increase annualised salaries under these arrangements to ensure salaries continue to be 'better off overall' than employees' minimum award entitlements.

Tips for HR and in-house counsel

Given the increases to minimum award entitlements, employers should proactively respond to increases in national minimum wage rates. HR and in-house counsel should consider the following in preparing for 1 July 2018:

• Will base rates under existing enterprise agreements fall below base pay rates under applicable modern awards after the increases take effect?
• Do minimum wage rates and other payments under enterprise agreements that are currently being negotiated need to be increased to ensure they pass the BOOT?
• Do individual flexibility arrangements need to be adjusted to ensure that employees remain 'better off overall' than if they were paid pursuant to the applicable award?

For assistance in addressing these questions and preparing for changes please contact Clayton Utz's Workplace Relations, Employment and Safety team.