The Fair Work Commission has announced a 4.75% increase to the National Minimum Wage and all Modern Award minimum wage rates, effective from the first full pay period commencing on or after 1 July 2026.
For many businesses, the immediate focus will be updating pay rates from 1 July. However, the wage increase can affect more than just minimum rates, it can affect remuneration arrangements, Award compliance, payroll, and retention.
We recommend reviewing these five key points to ensure your business is ready from 1 July.
1. Confirm Award Coverage and Classifications
Before reviewing rates of pay, employers should first ensure employees are covered by the correct Modern Award. Once the correct Award has been identified, employees should then be classified at the appropriate level based on the work they actually perform.
Applying the wrong Award or Classification can result in incorrect minimum rates being applied, even if the wage increase itself has been applied correctly. Confirming Award coverage and classifications is particularly important for employees whose duties have evolved over time or the role involves mixed responsibilities.
2. Review Wages and Entitlements
Employees currently being paid minimum wage will be directly affected by the increase, so employers must ensure that the new rates are applied correctly from the first full pay period commencing on or after 1 July.
However, reviewing pay rates alone may not be enough, entitlements must also be applied correctly. This may include reviewing:
- Overtime arrangements.
- Penalty rates.
- Allowances.
- Minimum engagement periods.
- On-call rates.
- Time off in lieu arrangements.
Even where hourly rates have been updated correctly, errors in employee entitlements can still result in underpayment/s.
3. Review Salary and Flat-Rate Arrangements
Many business businesses choose to pay salaries or flat rates rather than calculating Award entitlements separately each pay period. However, employers should be aware that each pay period must now stand on its own.
The Importance of Compliance for Each Pay Period
A recent Federal Court Decision has reinforced that compliance can no longer rely on averaging wages across a year or season, or another extended period of time. This means that an underpayment in one pay cycle cannot be offset by an overpayment in another.
Why a Better off overall test (BOOT) Should be Completed
A BOOT will determine whether a salary or flat rate is compliant. A BOOT assesses whether employees are receiving at least the same entitlements they would have received under the applicable Award in each pay period. For many businesses, this provides confidence that pay arrangements remain compliant following annual wage increases.
4. Review Payroll and Record-Keeping Processes
Payroll systems should be updated to ensure the new rates are applied correctly from the first full pay period commencing on or after 1 July.
Employers are also required to maintain accurate employment records and issue compliant payslips. Inadequate records can make it difficult to demonstrate compliance, so employers should ensure:
- Payroll systems are up to date and applying the correct rates of pay.
- Pay slips contain all required information.
- Employee records are complete and accurate.
- Hours worked, leave balances, and other employment records are being maintained.
- Records are being retained for the required period and are readily accessible if needed.
Taking the time to review payroll and records can help identify any errors early and provide greater confidence that employee entitlements are being applied correctly.
5. Review Attraction & Retention Strategies
While the immediate focus for many businesses will be implementing the new minimum rates, the wage increase also provides an opportunity to review broader remuneration arrangements.
Wage Compression
As Award minimum rates increase, the gap between entry level employees and more experienced workers decreases. Employees with additional skills, experience, or responsibilities may find themselves earning only marginally more than newer employees.
While there is no legal requirement to increase all wages, employers should consider whether remuneration structures continue to appropriately recognise experience and contributions.
Attraction and Retention
Remaining compliant is essential, but it may not always be enough to remain competitive.
Employers should consider:
- Whether remuneration remains competitive.
- Incentives or bonus arrangements.
- Non-cash benefits.
- Career progression opportunities.
The annual wage increase can provide a useful opportunity to assess whether current remuneration arrangements continue to support both attraction and retention on your business.
Looking Beyond 1 July
For many businesses, 1 July is a good reminder to step back and review more than just pay rates. Taking the time to review these areas can help identify potential compliance risks early, while ensuring your business remains well positioned to attract and retain good workers.
Need Support?
ProcessWorx can help businesses review their employment arrangements ahead of 1 July and identify potential compliance risks before they become larger issues. This can provide greater confidence that:
- Employees are being paid correctly.
- Award Determinations, Classifications, and pay arrangements remain compliant.
- Salary and flat-rate arrangements continue to meet Award requirements.
- Payroll processes and records meet compliance obligations.
- Remuneration arrangements continue to support attraction and retention objectives.
If you’re unsure how the 1 July changes may impact your business, our team is available to help. Contact us on (08) 9316 9896 or get in touch.
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