Back to PCS Connect

The Annual Wage Review explained

16 December 2013

The Annual Wage Review explained

Elizabeth Magill, Senior Associate

Each year, the Fair Work Commission is tasked with the job of reviewing and setting minimum rates of pay for modern awards and the national minimum wage. This is referred to as the ‘annual wage review’. The minimum wage plays an important role in providing pay equality and adequate income to low income households. The rates set through this process often have the greatest impact on small to medium businesses as they are required to adapt operations and staffing levels to meet their budgets. In this article, we consider how the minimum rates and wages are determined and likely trends for the next annual wage review.

Since the 1907 Harvester decision and the introduction of the minimum wage into the Australian workplace system, it has been a key function of the Commission (and its predecessor national workplace relations tribunals) to review and set the minimum wage for both employees covered by an award and award free employees. In June 2013, the Commission delivered its fourth annual wage review under the FW Act. As a result of this review, minimum wage entitlements increased to $16.37 an hour from 1 July 2013 – which was a modest increase of 2.6% or $15.80 per week (based on a standard 38 hour week) and lower than determined in last year’s review.

How the minimum wage is determined

In conducting the annual wage review the Commission is required to convene an Expert Panel (comprising the President, three full-time members and three part-time members) (the “Panel”). The Panel considers written submissions from interested organisations and individuals (33 interested businesses, governments and industry groups made submissions to the Commission this year), consultations before the Panel and any research which it commissioned as part of the annual wage review. Determining the minimum rates of pay and the national minimum wage is in accordance with the minimum wages objective and:

  • the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth;
  • promoting social inclusion through increased workforce participation;
  • the relative living standards and the needs of the low paid;
  • the principle of equal remuneration for work of equal or comparable value; and
  • providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability.

The 2013 Decision

As one would expect, economic considerations featured highly in the Commission’s reasoning and subsequent decision to award a moderate increase “which will result in a small improvement in the real value of modern award minimum wages in 2013-14”.1 Notwithstanding reasonably strong economic conditions over the financial year 2012/2013 and the economic outlook remaining favorable for the financial year ahead, the Commission relied on an expected ease in growth of the GDP, an expected increase in the unemployment rate, modest inflation and the increase to the superannuation guarantee rate to account for its decision.

With respect to social considerations and the assessment of relative living standards and the needs of the low paid, including the extent to which low-paid workers are able to achieve a decent standard of living and to engage in community life, the Commission noted that award rates of pay have fallen relative to average earnings, with earnings of award-reliant workers falling behind the rest of the workforce.2 The 2012-13 figures are consistent with an ongoing trend which is resulting in a decline in the relative living standards of award-reliant employees. The Commission also noted the decrease in award-reliant employees and the corresponding increase in employees on collective agreements. While these social considerations did not result in a significant improvement in the  minimum rates of pay, the Commission has flagged that it will be addressing the decline in the relative living standards of award-reliant employees in the annual wage review schedule for 2014.

What does this mean for Australian Workers and Employers?

As is typically the case following the annual wage review, the decision has not been without controversy and as noted by the Commission itself “there is often a degree of tension between the economic and the social considerations which we must take into account.”3

It is believed that the annual wage review will affect up to 2.3 million people across Australia (including directly affecting over 1.5 million employees who are award reliant), as according to a range of surveys, between 4 and 10 per cent of Australian adults are currently paid at or around the minimum wage. Minimum wage employment is most common in occupations such as food preparation, process workers, sales, hospitality and in agriculture and related occupations. It is also most common amongst younger and older workers, those with low levels of education and across small rms and businesses.

While unions argue that the increase does not go far enough, failing to close the gap between minimum wage earners and the rest of the workforce, employer groups across Australia have labelled the increase  a “blow for the small end of town”.4 Australian Chamber of Commerce and Industry CEO Peter Anderson says the increased wages will “have to be funded by Australia’s small and medium business community”5, affecting job security and containable labour cost structures as businesses seek to try to reduce working hours in order to maintain employment. These arguments are reflective of the deeply controversial policy considerations at the heart of annual wage reviews.

The Year Ahead

The process has now commenced for the minimum wage review 2014, with submissions due by 28 March 2014 and consultations scheduled to occur in mid May 2014. For the first time, the Commission is introducing an early consultation process allowing for the hearing of any witness evidence, which is due to occur in Feb/March 2014 (which may be subject to cancellation if there is no interest).

As identified during the 2013 annual wage review and subsequent decision, it is expected the Commission will be addressing the growing earning inequality in real wages compared to non-award covered employees and the associated decline in the relative living standards of award-reliant employees.

The Australian Government Treasury reports the outlook for the economy is favourable, “with solid growth, low unemployment and well contained inflation”6. The Australian economy is expected to continue to outperform most other advanced economies over the year ahead and in terms of employment conditions it is forecast that there will be continuing low levels of unemployment and high levels of labour force participation. Despite this, it is predicted that wage growth is expected to be subdued. The predictions for wage growth are largely based on a slight easing of GDP growth, slight increase in unemployment and the below-trend outlook for employment growth. Looking at the year ahead, while the Commission has stated that it will be looking to address the living standards of award-reliant employees, it is likely the current economic forecasts may restrict the Commission from awarding anything more than another modest increase.

  1. Annual Wage Review [2013] FWCFB 4000 at 44.
  2. ibid 32.
  3. ibid 10.
  4. ABC News On-Line ‘Fair Work Commission recommends $15.80 per week rise in minimum wage’ accessed at news/2013-06-03/fair-work-commission- recommends-26-per-cent-rise-in-minimum- wa/4729464 on 29 November 2013.
  5. ibid.
  6. Australian Government Treasury, Budget Paper No 1, accessed at 2013-14/content/bp1/html/bp1_bst2-01.htm on 3 December 2013.
Posted in Strateg-Eyes.
Free Events Calendar Plugin