Business groups are calling for a cautious approach to minimum wage rate increases this year, reflective of the tough economic conditions still faced by many sectors.
The Fair Work Commission considers upping the minimum wage on a yearly basis and new research reveals these increases accelerate wage growth across the whole economy, not just those on low salaries.
Australian Chamber of Commerce and Industry chief executive Peter Anderson told SmartCompany the issue is often oversimplified.
“For employers it also means a number of higher on costs on top of salaries including payroll tax, superannuation payments and workers compensation costs. These are not straightforward matters which can simply be decided by saying we want a wage increase,” he says.
Get business news first
Sign up to SmartCompany’s daily newsletter
“There needs to be a moderate and realistic approach, which should be looked at in terms of industry sectors, not necessarily across the board.”
Anderson says ACCI is talking with employers to determine what position it will take to the Fair Work Commission this year.
“Some industries and businesses are doing better than others, but the unemployment rate is set to rise, the economy to slow and business activity still remains muted in the areas where we want to see the labour market fire up,” he says.
New research released in late December, commissioned by the FWC, from Sydney University’s Workplace Research Centre found almost one in three employers passed on minimum wage rises to workers who were above award rates.
This number was even higher in industries such as media and telecommunications, mining, public administration and safety.
The majority of private sector businesses also reported between 25% and 50% of their operating expenses were comprised of labour costs.
On July 1, 2013 the FWC ordered a 2.6% increase to minimum wage rates for each classification level of the modern awards.
Anderson says excessive rises to minimum wage rates can price young people out of the workforce.
“Either the wage becomes unaffordable or the risk is too great, especially for young people in at-risk categories,” he says.
“Young people who may be long-term unemployed, people who have failed to complete their studies or people who have a substance abuse or social problem. These people are in a high risk category for employers.”
Anderson says for businesses to employ high risk young people, the direct wage cost is often too much when combined with the costs of providing support and training and the risk they won’t complete their work requirements.
“These risks are exacerbated by high minimum wage rates. It costs employers over $30,000 a year to employ the most basic unskilled worker,” he says.
The minimum wage is expected to rise again on July 1 this year. However, the FWC will review current research into the impacts of wage rises prior to making its decision.
There have only been three instances in the past 20 years where minimum wage rates have not been raised.
Currently, there are 1.5 million Australians whose salaries are determined by award rates, according to the Australian Bureau of Statistics.
Restaurant and Catering Industry Association of Australia chief executive John Hart told SmartCompany the decision on minimum wage rates needs to be decided based on “where we are globally”.
“We’re so far above the minimum wage rates in the OECD it’s not funny and that’s because of the increases over many years,” he says.
“We can’t continue to have increases of this magnitude, as we have had over the past five years. It needs to be based on where we’re at globally and in the context of the economic conditions of the past five years. This would lead to the need for additional data and economic analysis of the impact of the current minimum rates.”
The Sydney University research revealed minimum wage rates also have an impact on enterprise-level agreements.
Hart says businesses in the restaurant and catering sector react to wage increases by reducing staff or staff hours.
“It’s created lower levels of employment… We’re employing less people to do the same amount of work and this is a dangerous way to achieving productivity growth,” he says.