The minimum wage is set to increase by 1.75% on the first full pay period after 1 November 2020 in 73 modern awards, including those in the construction and manufacturing industries.
Unlike in most years where the minimum wage in all modern award increases on 1 July, this year the Fair Work Commission took the decision (due to the impact of COVID-19 on the economy) to increase the minimum wage on one of three dates, depending on how severe the industry was judged to be affected by COVID-19.
So, when does the 2020 wage increase apply to my business?
Group 1 Awards were increased from 1 July 2020, which covered awards in the following industries:
- Frontline Health Care & Social Assistance Workers;
- Teachers and Child Care;
- Other Essential Services.
Group 2 Awards are being increased from 1 November 2020, covering awards in the following industries:
- A range of other industries.
Group 3 Awards will be increased from 1 February 2021, awards in the following industries:
- Accommodation and Food Services;
- Arts and Recreation Services;
What do employers need to do now?
It is an obvious point, but it is fundamental that all employers know which award applies to each of their employees. Given that the majority of employees in Australia are covered by a modern award, employers should exercise care in taking the position that their employees are “award-free”.
Ascertaining award coverage is important not only because this will dictate the minimum rate that employees are paid, but it is a requirement under most modern awards that employees are informed in writing of the award that applies to them and their classification level under the award. Employers can be subject to significant financial penalties for breaching this (and indeed any) modern award obligation.
Working out an employee’s classification level under the applicable award is a delicate art – this will depend not only on the duties they perform, but can also be influenced by their years’ of experience, education and qualifications. Awards often have weird and wonderful provisions dealing with employee classifications, such as requirements that junior employees are paid an adult rate of pay when serving liquor or when driving a certain class of vehicle. If an employer classifies an employee as a Level 1 employee when they should be a Level 2 (for example) it is likely that the employee will have been underpaid.
If businesses have correctly classified their employees under the right award and at the right level, it should be then possible to ensure that the rate of pay the employees are receiving is at least at the minimum rate set by the award (noting that most awards have higher rates of pay for employees working long hours, in evenings, at weekends, etc as well as an “uplifted” annual leave loading when they take annual leave and allowances for things such as having to launder their own uniform, etc).
Whilst it is possible to pay a salary to meet all such obligations, it is generally not possible to average out the pay over a whole year unless the employer utilises an “annualised wage” provision in a modern award (which contains onerous requirements such as employees signing off on time-sheets each pay period). If an employer does not use these provisions, they will need to make such that the salary is sufficient to cover all entitlements in each pay period, rather than averaging the pay over the year.
If your employees are covered by any of the awards that are increasing as of 1 November 2020 it is important that you check the rates paid to your employees (whether hourly rates or a salary) will still be high enough to meet the minimum requirements, else it is time to give your staff a pay rise!
What if I already pay above the award, do I need to pass on the increase to employees?
No. You just need to make sure the rate you pay is still higher than the new minimum wage.
What about if my employees are covered by an enterprise agreement?
Section 206 of the Fair Work Act 2009 operates so that if the “base rate of pay” in an enterprise agreement falls below the “base rate of pay” in a modern award that would otherwise apply to an employee, then the employee will be entitled to the award rate instead.
“Base rate of pay” means the rate of pay ordinarily paid to the employee without any penalty rates or loadings.
In essence, this provision of the Fair Work Act means employers utilising enterprise agreements need to check that the minimum rates set by the enterprise agreement are (still) higher than the applicable rate under the modern award after the 1 November increases. If the award rate has “overtaken” the enterprise agreement rate, the employer should use the modern award rate instead.
Full list of Group 2 Awards;
The below table indicated the Industry & Occupation modern awards that will see the minimum wage increase from 1 November 2020.
How can EI Legal help?
EI Legal frequently advises clients on award coverage and classifications, as well as on obligations under enterprise agreements.
We are routinely engaged to perform audits of the rates of pay businesses pay to their staff. Such an audit can be created bespoke to a business’ needs, but often involves considering a range of employees over a set period of time (usually a few pay periods) and considering the rates they have been paid compared to the actual hours they have worked. This provides businesses with an invaluable insight as to whether employees are being paid correctly or whether measures need to be taken to remedy any shortfalls.
If you require assistance, please contact us.