Legal Update

Increases to Minimum Wages and the High Income Threshold – Important Changes Regarding Wages in effect from 1 July 2023

July 2023

Authors: Amy Zhang & James El-Jalkh

With the start of the new financial year comes changes to the national minimum wage and the high-income threshold for the purpose of unfair dismissal applications. Employers should be aware of the following important changes that will affect most, if not all, businesses in Australia.

1.  MINIMUM WAGES

From 1 July 2023, Australia’s national minimum wage for adult employees increased from $812.60 per 38 hour week (or $21.38 per hour) to $882.80 per 38 hour week (or $23.23 per hour). Whilst the Fair Work Commission (FWC) increased the rate of the national minimum wage by 5.75%, the actual effective increase is 8.6% due to an ending of an alignment between it and the and the lowest (C14) pay classification in modern awards.

Similarly, minimum rates under modern awards also increased by 5.75%  for the first full pay period on or after 1 July 2023.

For junior employees who are award and enterprise agreement-free, the percentage scale set out in the Miscellaneous Award 2020 is applied to the national minimum wage to determine their applicable minimum rate of pay.

The minimum casual loading for award and enterprise agreement-free employees remains at 25%.

While not all wages will rise as a result of the national minimum wage increase, employers should nonetheless review wage rates to avoid any risk of accidental underpayment.

The National Minimum Wage Order 2023 can be viewed on the Fair Work Commission’s website via this link:
https://www.fwc.gov.au/hearings-decisions/major-cases/annual-wage-reviews/annual-wage-review-2022-23/national-minimum-wage

Please contact Harmers Workplace Lawyers if you would like further information or assistance with calculating revised rates.

2. HIGH INCOME THRESHOLD

From 1 July 2023, the “high income threshold” for the purposes of the Fair Work Act 2009 (Cth) (Act) increased from $162,000 per annum to $167,500 per annum. This increase affects employers in a number of ways:

• for the purposes of unfair dismissal claims, employees who are not covered by either a modern award or enterprise agreement and who now earn less than $167,500 per annum will be able to bring a claim;
• it increases the maximum compensation available for unfair dismissals to half of that threshold, i.e. $83,750 (or six months remuneration, whichever is less); and
• it increases the “guaranteed earnings” that need to be paid to modern award covered employees under a written “guarantee of annual earnings” clause to ensure the modern award no longer applies to the employee.

Unlike the position with award-related guarantees, the threshold is not pro-rated for part-time employees, but simply operates in this context as a set limit.

Whether an employee reaches the high-income threshold is determined by a calculation of their annual “earnings”. In this respect, employers should note that the Act contains a special definition of “earnings”.

“Earnings” do not include:

• payments that cannot be determined in advance – such as commissions, incentive-based payments, bonuses, and overtime (unless the amount is guaranteed);
• reimbursements; and
• ordinary contributions to superannuation (i.e. compulsory superannuation payments).

“Earnings” do include:

• wages;
• amounts paid on the employee’s behalf or as the employee directs – this will cover additional, voluntary superannuation contributions paid at the direction of the employee; and
• the agreed value of non-monetary benefits such as a car, phone or laptop.

Further, an employee’s annual rate of earnings is to be assessed at the time of dismissal – it refers to the annual rate of earnings at that time, and not the annual earnings to that time (that is, the amount earned in the 12 months to that time).

Employers need to take care in assessing earnings – for example, providing an employee with a company car will not take an employee over the high-income threshold unless there is a prior agreed value assigned to the use of the vehicle. Employers should seek advice if they are not sure whether an employee is above the high-income threshold and protected from unfair dismissal, as this may be important in allowing an employer to raise a jurisdictional objection to stop unmeritorious unfair dismissal claims early.

Employers with senior employees under guarantees of earnings should also check their contracts and the written guarantee to ensure they continue to comply.

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