Updated ,first published
The Fair Work Commission has approved a pay rise of 4.75 per cent for millions of Australians in a move welcomed by unions, but sparked warnings from employer groups that the decision could fuel further inflation.
The fair work arbiter on Tuesday morning handed down its annual wage review decision in Sydney, delivering a 4.75 per cent increase for about 3 million Australians on award wages, and an even higher increase of 6 per cent for the 100,000 workers on minimum wages.
From July 1, the national minimum wage will hit $1004.90 a week, or $26.44 an hour, up from $948 a week and $24.95 an hour last year. The increase takes the minimum annual wage, based on a 38-hour working week, to above $50,000 a year for the first time.
The increase falls slightly short of the 5 to 6 per cent wage rise sought by unions and keeps workers worse off than they were before the pandemic when accounting for inflation. However, it is substantially higher than the 3.5 to 3.9 per cent increase proposed by major employer and business groups during the consultation process.
One in five Australian employees are on award wages and of those, two-thirds work in sectors including accommodation and food services, healthcare and social assistance, retail trade and administrative and support services. More than 60 per cent are female and most work on a part-time or casual basis, meaning the wages paid to award workers comprise about 11 per cent of the national wage bill.
In its decision, the Fair Work Commission acknowledged many employees were still worse off in “real terms” because of inflation outpacing wage growth since the pandemic. However, the commission said it would not be “practicable or responsible in the current uncertain circumstances” to deliver a wage increase that would fully compensate workers for their wages falling short of price pressures over the past few years.
Instead, the workplace arbiter said the wage increase should ensure modern award-reliant employees were not worse off in real terms than they were at July 1 last year, and that it took additional measures to protect those who were the lowest paid by giving them a pay boost of 6 per cent.
“The determination of this year’s review outcome has been particularly challenging because of the unusual degree of complexity in the interaction of the matters we are required to take into account,” the commission said in considering balancing the needs of low-paid workers, the need to achieve gender equality and the national economy’s performance and competitiveness.
The commission underscored wider economic challenges including the tightening of interest rates by the Reserve Bank, which would “undoubtedly slow down the economy” in the year ahead, and the “wild card” of the war in the Middle East, which the commission said added uncertainty to the trajectory of the economy.
Some economists, including AMP economist My Bui, said the wage increase would help push up wages across the Australian labour market, especially if those in the private sector used it as a benchmark for their own wage negotiations. This could add to inflation pressure, Bui said, and increased the possibility of another interest rate hike in November.
Australian Chamber of Commerce and Industry policy chief David Alexander told reporters in Canberra that small businesses would bear the brunt of the wage rise, with some choosing to pass it on to customers through higher prices.
“The RBA forecast [for inflation] is 4.8 per cent as you say, but then tails down towards almost half of that over the course of the year,” he said. “So what you’re seeing is the Fair Work Commission embedding that increase in the minimum wage for the year … and we’ll therefore put pressure on inflation.”
For other businesses, Alexander said, it would be too much to bear as they already struggled with high inflation, high fuel costs and interest rate rises.
He said the approach of the unions was “fundamentally misguided”, and argued the only way to sustain higher wages was through thriving businesses and higher productivity.
“What these commissioner decisions are doing is eroding the linkage between productivity and wage output,” Alexander said. “That’s not a good way to run an economy. It’s upsetting the incentive structures that work in an economy to drive innovation and the best decisions.”
Opposition employment spokeswoman Jane Hume said inflation would eat away the wage increase.
“The best way to improve living standards for all Australians is to get inflation down, lift productivity and support businesses to grow and employ more Australians,” said Hume, also the deputy Liberal leader.
“When businesses are struggling with rising costs and Labor’s new taxes, there is a real risk that fewer jobs will be created and fewer opportunities will be available for Australians looking for work. Higher wages mean nothing if you don’t have a job.”
Treasurer Jim Chalmers welcomed the Fair Work Commission’s decision and said it would help alleviate cost-of-living pressures for the lowest wage earners.
“This is the sustainable real wage increase that the government has called for, and we’re pleased to see it delivered in today’s decision,” Chalmers said.
Employment Minister Amanda Rishworth said the commission had considered the current business conditions.
“They did acknowledge that we have seen increased profits in 2025 compared to 2024 and increased business investment compared to the previous year,” she said.
Rishworth said the commission had also assessed the potential implications for wider wage growth and the inflationary impact.
“When we look at the impact on the wages bill, it is a small proportion of the overall wages bill,” she said.
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Millie Muroi is the economics writer at The Sydney Morning Herald and The Age. She was formerly an economics correspondent based in Canberra’s Press Gallery and the banking writer based in Sydney.Connect via X or email.
Brittany Busch is a federal politics reporter for The Age and Sydney Morning Herald.Connect via email.