Australia's minimum wage to rise by 5.97%, award wages by 4.75%

Australia's minimum wage will increase by 5.97 per cent, and minimum award workers will get a 4.75 per cent pay boost, in the Fair Work Commission's (FWC) annual wage review.

The new national minimum wage will be $26.44 per hour (up from $24.95), and $1,004.90 per week (up from $948), based on a full-time 38-hour week.

The pay increase will begin on July 1 for millions of low-paid workers.

While the national minimum wage covers a very small proportion of the workforce, about 21 per cent of all employees in Australia are paid at a minimum award rate, amounting to almost 2.8 million people.

According to the FWC, because of the part-time and low-paid characteristics of the modern award-reliant workforce, the wages paid to them constitute only about 11.2 per cent of the national "wage bill".

Workers reliant on award wages are disproportionately female, more than two-thirds work part-time hours, more than half are casual employees and more than a third are low-paid.

Four industry sectors — accommodation and food services, health care and social assistance, retail trade, and administrative and support services — account for more than two-thirds of all modern award-reliant employees.

Each year, the FWC takes submissions from government, business groups and unions before making its own wage determination.

The Albanese government had pushed for an above-inflation pay rise for the national minimum wage and modern award wages. The Australian Chamber of Commerce and Industry (ACCI) asked for 3.5 per cent.

Peak union the Australian Council of Trade Unions (ACTU) asked for 5 per cent, but it later increased that to 6 per cent after the federal budget forecast higher inflation this year.

"This would lift the National Minimum Wage (NMW) by $1.50 an hour to be $26.45, and for the weekly rate to be $1004.88. This is a 1 percentage point increase on our earlier claim of 5 per cent," the ACTU's supplementary submission said.

Headline inflation is currently running at an annual pace of 4.2 per cent.

FWC wanted to stop real wages going backwards

The Fair Work Commission said its determination was "particularly challenging" this year due to the "wildcard" of the war in the Middle East, which has disrupted oil supplies and accelerated inflation in Australia.

It said most modern award-reliant employees were still in the position that their wage rates, in real terms, remained lower than what they were in July 2021, prior to the post-pandemic spike in inflation in 2022 and 2023.

However, it said it had "regrettably" decided that it would not be responsible, in the current circumstances, to award real wage increases for employees reliant on modern award wage rates that would be big enough to close the real wage gap entirely (back to 2021 levels).

Instead, it decided to lift wages by the amount necessary to ensure that modern award-reliant employees generally were not worse off in real terms than they were of July 1, 2025.

The Australian Council of Trade Unions (ACTU) has welcomed the decision, saying it broadly keeps up with the cost of living and provides some financial relief for 3 million working Australians.

"Australian unions work hard to secure wage increases, and we welcome the Fair Work Commission's decision to lift wages for around 3 million lower-paid workers by 4.75 per cent come 1 July," ACTU secretary Sally McManus said.

"It is encouraging to see that even higher wage rises of 6 per cent, matching our full claim, have been awarded to around 100,000 workers on the very lowest pay rates because they simply could not afford to wait.

"The lowest-paid need to spend almost all of what they earn to survive, and this wage increase will be vital to them while generating income for local businesses that also need a boost," she said.

But the Australian Chamber of Commerce and Industry (ACCI) is disappointed with the decision.

It said the increase would add to cost pressures across the economy at a time when many businesses, particularly small businesses, have very limited capacity to absorb additional costs.

"Today's decisions further de-links wage outcomes from productivity, and economic activity will suffer as a result," the ACCI's chief of policy and advocacy, David Alexander, said.

"For businesses that are already struggling with interest rate hikes, high inflation and high fuel prices, this decision putting up wage costs will only add to the burden."

Phasing out of lowest-classification wage rate

The FWC has also made an important decision about the lowest-paid classifications in modern awards.

After a multi-year review, it has decided to phase out the very lowest-paid classification for ongoing employment, called C13, and make the next wage level up, C12, the lowest wage rate for ongoing employment.

The adjustment will result in the lowest wage rate in the modern award system applicable to ongoing employment being $1,004.90 per week or $26.44 per hour (the same as the new minimum wage).

The special entry-level wage rate, C14, which is applicable for a period of no more than six months of initial employment before it has to increase, will be $978.1 per week or $25.74 per hour.

The ACCI said it was also disappointed with the decision to reclassify the lowest incomes to include an additional increase to minimum wages not linked to productivity.

"In an environment of weak and uneven productivity, the economy's capacity to absorb large, mandated wage increases is fundamentally constrained," Mr Alexander said.

The FWC says it will also keep pushing forward with its review of specific award classifications in order to eliminate gender-based undervaluation of work in modern awards to ensure that female workers receive equal remuneration for work of equal or comparable value.

"[This] will result in the phasing in of wage increases to children's services employees, dental assistants, pathologists, disability home care workers, pharmacists and a range of other health professionals over the next few years," it said.

"These are all female-dominated occupations, and we expect this to result in a further narrowing of the gender pay gap."

What do economists say about the decision?

ANZ economists said the 6 per cent increase in the minimum wage and 4.75 per cent rise in modern award wages were the largest wage increases since the FWC's 2023 decision, when it awarded a 5.75 per cent increase.

But they do not think it will have a material impact on inflation.

"Increases in award wages do not typically flow through fully to the Wage Price Index, but if they did, we estimate this decision would make an around 0.5 percentage point contribution to annual WPI growth," they said.

"We expect the softer activity outlook and the increase in the unemployment rate to provide an offset to the FWC's decision when it comes to the aggregate wages bill, and hence do not see today's outcome materially altering the outlook for wages, inflation or the cash rate," they said.

Westpac economists said that while the wage increases would not "substantially add to the inflationary impulse", the indirect impact would be harder to gauge.

"To the extent that today's decision acts as a benchmark across wage setting in the economy, there is a risk that inflation expectations remain elevated for longer, making the RBA's job harder," Westpac economist Ryan Wells said.

"That said, the gradual easing in the labour market and slowdown in the economy will reduce this risk."

Other economists said the decision could increase inflationary pressures. AMP economists said there was a risk the wage increases could spill over into other parts of the economy, and interest rates may have to rise by more.

"Wage pressures will add to already sticky services inflation, as businesses pass on higher labour and input costs, which have remained elevated amid rising goods prices," ANZ economist My Bui wrote.

"As a result, we are now forecasting another rate hike in November, taking the peak cash rate to 4.85 per cent for this cycle. There is also a risk that the upcoming hike comes sooner, in June rather than August," she said.