Annual Wage Review 2023-24 [2024] FWCFB 3500 | Case summary

[2024] FWCFB 3500

Annual Wage Review 2023-24 [2024] FWCFB 3500 | Case summary | Zoe

[8] We have decided to increase the National Minimum Wage and all modern award minimum wage rates by 3.75 per cent, effective from 1 July 2024. In determining this level of increase, a primary consideration has been the cost-of-living pressures that modern award-reliant employees, particularly those who are low paid and live in low-income households, continue to experience notwithstanding that inflation is considerably lower than it was at the time of last year's Review. Modern award minimum wages remain, in real terms, lower than they were five years ago, notwithstanding last year's increase of 5.75 per cent, and employee households reliant on award wages are undergoing financial stress as a result. This has militated against this Review resulting in any further reduction in real award wage rates. At the same time, we consider that it is not appropriate at this time to increase award wages by any amount significantly above the inflation rate, principally because labour productivity is no higher than it was four years ago and productivity growth has only recently returned to positive territory. We have taken into account that the labour market and business profit growth overall remain strong, but the picture is less positive in some of the industry sectors which contain a large proportion of modern award-reliant employees. We have also taken into account that modern award-reliant employees will shortly receive the benefit of the Stage 3 tax cuts and the Budget cost-of-living measures, which are projected to increase real household disposable incomes over the next 12 months. We have treated the forthcoming increase to the Superannuation Guarantee contribution amount as a moderating factor.

[9] The increase of 3.75 per cent which we have determined is broadly in line with forecast wages growth across the economy in 2024 and will make only a modest contribution to the total amount of wages growth in 2024. We consider therefore that this increase is consistent with the forecast return of the inflation rate to below 3 per cent in 2025.

[10] We have also determined to establish a program for the timely resolution of gender undervaluation issues arising in respect of certain modern awards. A gender equity research project which was undertaken following the decision in last year's Review has now been completed, and this has permitted us to identify priority areas for attention. Modern awards and classifications applicable to early childhood education and care workers, disability home care workers and other social and community services workers, dental assistants, medical technicians, psychologists, other health professionals and pharmacists will be the subject of Commission-initiated proceedings to examine and address gender undervaluation. These proceedings will commence shortly after the issue of this decision and we intend that they will be completed by the time of next year's Review, which will then move on to the consideration of other gender undervaluation issues.

In the AWR 2023 decision, the Expert Panel referred to the budget standards report published by the Commission in March 2023 which, among other things, analysed disposable incomes when receiving the then-C14 rate, to which the NMW was then aligned, on a full-time basis relative to budgets constructed according to the Minimum Income for Healthy Living (MIHL) standard for 14 household types. This showed that, excluding discretionary spending, 12 of those 14 household types earned less than the budget amounts necessary to meet the MIHL standard and, if discretionary spending was included, none of them did.[81]
However, we do not consider that this analysis can be given significant weight in our consideration of relative living standards and the needs of the low paid for three reasons. First, as already stated, the AWR 2023 decision changed the alignment of the NMW from the C14 rate to C13. Second, because it is not possible to identify anyone to whom the NMW actually applies, we do not know which, if any, of the household types is relevant to NMW-reliant employees. The third is that, as foreshadowed in the AWR 2023 decision,[82] a review of those modern awards containing the C14 rate has now substantially been completed. This Review was widened in scope following the AWR 2023 decision to include any modern awards containing a classification rate below the C13 level and ultimately encompassed 70 modern awards (including a number of modern enterprise awards). In a decision issued on 16 April 2024,[83] the Full Bench conducting the review determined that the lowest adult rate in any modern award applicable to ongoing employment should be at least the C13 rate, and that any rate below the C13 rate (including but not limited to the C14 rate) must be an entry-level rate which operates only for a limited period not exceeding six months and provides a clear transition to the next classification rate (which must not be less than the C13 rate).[84] The Full Bench's decision outlined, on a provisional basis, the variations to be made to each relevant award with an operative date of 1 January 2025. Although the Full Bench prescribed a maximum period of six months for any employee to remain on a classification rate that is below the C13 rate, in the large majority of proposed award variations the actual period is three months or less. We can reasonably anticipate therefore that, by the time of next year's annual wage review, any award rate below the C13 rate will simply be a temporary stepping stone to a rate at the C13 level or higher. In these circumstances, we do not consider it useful to continue to analyse relative living standards or the needs of the low paid by reference to the C14 rate.

[118] The result is plainly anomalous. In the Stage 1 Aged Care decision and the Stage 3 Aged Care decision, the work of home care workers in aged care covered by the SCHADS Award was found to have been the subject of gender undervaluation having regard to the female domination of that occupation, the existence of the indicia of gender undervaluation in their history of award regulation and the nature of the 'invisible' caring skills exercised in their work. As the Stage 1 and Stage 2 reports indicate, there is no reason to think that the position of home care workers servicing disability clients is any different. Indeed, as found in the Stage 3 Aged Care decision, some employers and employees covered by the SCHADS Award undertake a mixture of aged and disability home care services. In our view, that warrants a priority consideration of whether the classifications and rates of pay for Home Care Employees - Disability Care under the SCHADS Award should return to alignment with those for Home Care Employees - Aged Care on the basis of the outcome determined in the Stage 3 Aged Care decision.

[119] Indeed, we consider that a broader review of all classifications in the SCHADS Award is timely. As the Stage 2 report demonstrates, the development of the SCHADS Award during the award modernisation process involved an amalgam of provisions from various pre-modern and State awards covering various different parts of the social services sector. This resulted in the SCHADS Award containing three different classification streams, which has itself caused difficulty in the application of the award at the workplace level. This has been exacerbated by the operation of the ERO rates upon one of the streams and now the application of the aged care wage increases on part of one of the other streams. In our view, consideration needs to be given to whether the classifications in the SCHADS Award can be integrated, or at least aligned, on the basis that the whole of the coverage of the award is female-dominated and is likely to involve the exercise of 'invisible' caring skills. This would require consideration as to whether the ERO rates should be incorporated into the SCHADS Award and the ERO itself revoked.

[127] Professor Meg Smith and Dr Michael Lyons of Western Sydney University also made an independent submission that it is highly likely that the minimum rates of pay for Education Aides under the Educational Services (Schools) General Staff Award 2020 are subject to gender-based undervaluation due to the application of the C10 Metals Framework Alignment Approach and the lack of any past work value assessment. They pointed to the making of a new award for public sector school administrative and support staff in NSW by the Industrial Relations Commission of NSW in 2019 pursuant to the equal remuneration principle applicable in that jurisdiction which involved a restructuring of classifications and significant pay increases.

[128] We do not consider that the additional occupational categories identified by the ACTU, the FAAA, and Professor Smith/Dr Lyons warrant the same degree of priority consideration as the occupations we have earlier identified. It is less apparent that employees in the above categories exercise 'invisible' caring skills of the same kind or degree as those considered in the Stage 3 Aged Care decision. However, that should not be taken as constituting the expression of any view as to whether the award rates of pay for the above occupations have been the subject of gender undervaluation. In the case of Education Aides and aircraft cabin crew covered by the ACC Award, the level of modern award reliance is not high. These occupations may arise for further consideration once the priority matters we have identified have been dealt with.

[129] We emphasise that our identification of priority matters is not intended to constrain the capacity of any party with standing under s 158 of the FW Act to make an application to vary the minimum rates of pay in any of the above modern awards outside of the annual wage review process on work value grounds. In the case of the matters raised by the FAAA, the Commission will undertake a research project concerning the history of the ACC Award which might assist in informing any future proceedings to vary that award.

[141] Higher interest rates have forced many households to reappraise their financial circumstances and find means of containing or reducing their spending. During 2023, household consumption growth steadily fell and is forecast to be near zero over 2023-24, which is notable when set against a backdrop of very high population growth. Weak consumption growth is the main factor that explains the slowdown in economic activity, from 2.4 per cent in 2022 to 1.5 per cent in 2023. This slowdown is likely to have reached a trough in the first half of 2024, with forecasts of a pick-up in economic activity in 2024-25.

[142] Whether the monetary policy tightening cycle has peaked depends upon the trajectory of inflation over coming months. Annual inflation reached a high of 7.8 per cent over the year ending December 2022, its highest rate since 1990, and has since fallen each quarter to reach 3.6 per cent over the year ending March 2024. While inflation has fallen by more than half from its peak, it remains above the RBA's target band of 2-3 per cent. There are some concerns that it may persist above the band for longer than set out in official forecasts. The government is forecasting that the CPI could reach 3 per cent or lower by the end of 2024, assisted by Budget measures which lower the out-of-pocket costs to consumers of electricity and renters in receipt of Commonwealth Rent Assistance. However, we note that the RBA's latest forecast made ahead of the Budget is that inflation will persist above its target band for longer.

[143] A falling rate of inflation for goods has been countered by persistently high inflation for services. Rising nominal labour costs, the highest in many years, have been a major factor contributing to higher services inflation. That said, the concern expressed by some commentators that Australia was heading for a wage-price spiral episode did not eventuate, and recent evidence is that wages growth may have peaked. In aggregate, wage increases have lagged inflation until very recently, with annual wage growth nudging above inflation only in the past two quarters. Most workers have experienced a steep decline in real wages whether covered by awards, collective or individual agreements, and irrespective of their position in the wage distribution.

[144] In normal circumstances, the inflationary impact of increases in labour costs are attenuated by productivity growth, but recent productivity patterns have been abnormal. There were solid gains in GDP per hour worked during 2020 and 2021, but these were more than fully eroded over the course of 2022 and 2023, returning productivity levels to what they had been prior to the pandemic. The pandemic explains some of this abnormal pattern, as lockdowns saw a reduction in hours worked by lower-productivity workers pushing up productivity growth, which was then thrown into reverse as restrictions were lifted. More recently, the spurt in population growth following the reopening of the borders to migrant workers has made the economy less capital-intensive, lowering productivity. Official forecasts are for productivity growth to return toward its long run trend of 1.2 per cent a year, but there is a greater degree of uncertainty around these forecasts than is common.

[145] The slowdown in economic activity has, to date, not come at the cost of appreciably higher unemployment. There has been some softening in labour market conditions, with the adjustment coming in the form of a decline in hours worked - 0.8 per cent less over the year ending April 2024 - rather than in jobs. Employment has grown at a similar rate to the labour force - 2.8 per cent and 3.2 per cent, respectively. As a consequence, the unemployment rate has drifted up slowly to reach 4.1 per cent in April 2024. There are, as always, differences across industries, with some industries that are more award-reliant than others having seen a sharper drop in labour demand. There were cuts to employment as well as hours in Accommodation and food services, and a decline in employment in Retail trade. These two sectors alone employ over a third of all modern award-reliant employees. Official forecasts are for employment growth to slow in 2024-25, with the unemployment rate to drift up further but remain at a rate near full employment.

[146] Many workers and many households have seen a deterioration in their disposable incomes in the past couple of years. Inflation has outpaced increases in wages, loan repayments have risen for many homeowners with a mortgage, rents and energy costs have risen sharply, and many workers paid more income tax. There are clear signs of a return to positive income growth in the coming year. As mentioned, wages are now rising slightly faster than inflation, and are expected to continue to do so. All households will benefit from the government's energy rebate, and all income taxpayers will face lower average tax rates than they did in 2023-24. It is this rise in real disposable income that is expected to be the basis of the pick-up in economic activity in 2024-25.

[147] Despite the increase of 5.75 per cent to modern award minimum wage rates in the AWR 2023 decision, the position remains that real wages for modern award-reliant employees are lower than they were five years ago. This has undoubtedly placed financial stress upon such employees who, as earlier explained, are disproportionately casual, part-time, low paid and female and are therefore most vulnerable to adverse changes in economic circumstances. The NMW was increased by a higher amount in 2023 and, as a result, to the extent that there are any employees paid in accordance with the NMW, they have not suffered the same decline in real wages over the last five years.

Against the economic backdrop we have described, a number of the parties which have made submissions to this Review have advanced specific proposals for wage adjustments. The quantum of wage increases proposed vary widely. Although, as earlier stated, it is not our task to adjudicate between the competing positions, it is appropriate for us to make some brief comments about the main proposals. The ACCI proposed that there be a uniform increase to the NMW and modern award minimum rates of no more than 2 per cent, which it characterised as amounting to 2.5 per cent once the increase in the Superannuation Guarantee contribution rate effective from 1 July 2024 is taken into account. This proposal would result in a further significant real wage cut for modern award-reliant employees in circumstances where such employees are already subject to financial stress for the reasons earlier explained. The ACCI's justification, as articulated at the hearing before us on 22 May 2024, was that 'all parts of the economy must play their role'[168] in order for inflation to return to the RBA's target range of 2-3 per cent. The principal difficulty with this proposition is that it would require modern award-reliant employees, who are by definition the lowest-paid group of employees in each industry sector or occupation in which they are employed, to be required to take a real wage cut over the forthcoming year. By contrast, it is forecast that wages growth in aggregate will exceed inflation over the next 12 months. Because the wages of modern award-reliant employees constitute less than 11 per cent of the national wage bill, the adoption of the ACCI's proposal would have no significant effect on the WPI or, as a consequence, on lowering the rate of inflation. Further, the effect of the proposal would be to wholly or substantially negate the benefit of the cost-of-living measures announced in the Budget which are intended to mitigate financial stress upon households. Thus, we consider that the ACCI's proposal gives inadequate weight to 'relative living standards and the needs of the low paid' (ss 134(1)(a) and 284(1)(c)) and would not maintain 'a safety net of fair minimum wages' (s 284(1)). Proposals advanced by other employer bodies, including the Ai Group, most of which involved increases of less than 3 per cent, suffer from the same difficulty.

[151] We have set out earlier in this decision the way in which we have taken into account the matters prescribed by s 284(1) of the FW Act. Our conclusion is that the NMW should be increased by 3.75 per cent in order to maintain a safety net of fair minimum wages. This is an amount which will retain the real value of the enhanced NMW established in the AWR 2023 decision and will thus appropriately address the relative living standards and needs of those low paid employees to whom the NMW may apply (s 284(1)(c)). As explained above, further research undertaken since the AWR 2023 decision leads us to infer that the number of NMW-reliant employees is significantly less than the 0.7 per cent of the workforce estimated in that decision and also lower than the Australian Government's current estimate of 0.25 per cent of the workforce. That means that the increase we have decided to award will not have any discernible macroeconomic effects or affect the level of workforce participation, thus rendering the matters in ss 284(1)(a) and (b) of neutral weight in our consideration of the NMW. If the gender balance of those employees who are NMW-reliant reflects that of modern award-reliant employees, it is likely that the increase will disproportionately benefit women. However, for the purpose of s 284(1)(aa), the practical effect upon the achievement of gender equality will be negligible.

[152] In respect of s 284(1)(e), the special NMWs applicable to junior employees, employees to whom training arrangements apply and employees with a disability who are award/agreement free will be as set out in section 9 of this decision. The casual loading for award/agreement free employees will remain at 25 per cent. Consistent with s 287 of the FW Act, the NMW order we make by this decision will come into operation on 1 July 2024.

[153] In the AWR 2023 decision, it was envisaged that the NMW would be the subject of further review having regard to, among other things, the budget standards research referred to in that decision. As explained in paragraph [84] above, we do not consider that such a review is practicable in the absence of anything which permits the identification of the categories and characteristics of NMW-reliant employees, if any. We invite parties in next year's annual wage review to present any evidence or other material which might advance our understanding of the practical scope of application of the NMW.

[157] We do not consider that the opportunity referred to has yet arisen. Inflation remains above the RBA's target range and, as we have explained in respect of the ACTU's submission, there are as yet insufficient grounds for confidence that productivity growth has returned to its pre-pandemic average level. The position for inflation and productivity remains somewhat uncertain, and this calls for a degree of caution on our part. We also take into account that, on the premise that there is no reduction in real wages for modern award-reliant employees resulting from this decision, their real household disposable incomes will increase over the next 12 months because of the Stage 3 tax cuts and the Budget cost-of-living measures.

[158] There is no basis to conclude that the increase of 5.75 per cent award in the AWR 2023 decision had any discernible disemployment effects. The slight weakening in a still-strong labour market over the last 12 months, and the more marked weakening in employment in the Accommodation and food services and Retail trade sectors, is primarily attributable to the tightened monetary policy maintained by the RBA and its effect on household spending. Accordingly, we have no reason to consider that any amount of increase to modern award minimum wage rates within reasonable parameters will detrimentally affect the labour market having regard to the RBA and Budget forecasts for employment growth, unemployment and participation. However, because of the extent to which modern award-reliant employees are casual or work part-time hours, it is necessary to pay close attention to any reduction in hours worked in the sectors in which such employees are concentrated. The current circumstances in the Accommodation and food services and Retail trade sectors have operated as a moderating factor in our determination of the increase to be awarded.

[159] The solid profit growth in non-mining industries might suggest that the cost to business overall of any reasonable increase flowing from this Review would not present as a major concern. However, it is necessary to take into account two additional matters. First, profits fell in the Accommodation and food services sector and were flat in the Retail trade sector in 2023 which, again, was a product of the reduction in discretionary household spending. Second, the Superannuation Guarantee contribution rate will increase by a further 0.5 per cent effective from 1 July 2024, bringing the total contribution rate to 11.5 per cent. This is a cost to employers which, if they employ modern award-reliant workers, they will have to bear simultaneously with the cost of modern award minimum wage increases flowing from this Review. We have treated these matters as moderating factors.

[160] Having regard to and appropriately weighing the matters we are required to take into account under ss 134(1) and 284(1) of the FW Act, the object of the FW Act in s 3, and the rate of the NMW we have set, we have decided that all minimum wage rates in modern awards shall be increased by 3.75 per cent. In accordance with s 286, the variations to modern awards to increase minimum wage rates by this amount will come into operation on 1 July 2024.

[161] The increase we have determined to award is broadly consistent with projected wage growth for the economy generally across 2024. Based on the analysis in paragraphs [36]-[39] above, we estimate this increase will contribute approximately 0.4 of a percentage point to the WPI for the 12 months to March 2025. This is consistent, in our view, with the forecast return of inflation to the RBA's target range in 2025.

[173] This section sets out the outcome of this Review and other relevant matters.

[174] The NMW order will contain:

(a) A national minimum wage of $915.90 per week or $24.10 per hour;

(b) Two special national minimum wages for award/agreement free employees with a disability: for employees whose productivity is not affected, a minimum wage of $915.90 per week or $24.10 per hour based on a 38-hour week, and for employees whose productivity is affected, an assessment under the Supported Wage System (SWS), subject to a minimum payment fixed under Schedule A to the order;

(c) Wages provisions for award/agreement free junior employees based on the percentages for juniors in the Miscellaneous Award 2020 applied to the national minimum wage;

(d) The apprentice wage provisions and the National Training Wage Schedule in the Miscellaneous Award 2020 for award/agreement free employees to whom training arrangements apply, incorporated by reference; and

(e) A casual loading of 25 per cent for award/agreement free employees.

[175] The NMW order will operate from 1 July 2024, and will take effect in relation to a particular employee from the start of the employee's first full pay period on or after 1 July 2024.

[176] Modern award minimum wages will be increased by 3.75 per cent. The variation determinations in respect of all modern awards, modern enterprise awards and State reference public sector awards will operate from 1 July 2024 and take effect in relation to a particular employee from the start of the employee's first full pay period on or after 1 July 2024.

[177] The determinations necessary to give effect to the increase in modern award minimum wage rates will be made available in draft form shortly after this decision. Determinations varying the modern awards will be made as soon as practicable and the modern awards including the varied wage rates will be published as required by the FW Act.

[178] Our determination in this Review is that the wage rates in all remaining transitional instruments and copied State awards are also increased by 3.75 per cent. This determination comes into operation on 1 July 2024 and takes effect in relation to a particular employee from the start of the employee's first full pay period on or after 1 July 2024. The Commission is not required to publish the rates of the wages in the relevant transitional instruments or copied State awards as so varied, and accordingly we will not do so.

[179] In relation to the gender undervaluation conclusions stated in paragraphs [112]-[123] and [169]-[172] above, the Commission will shortly initiate proceedings on its own initiative pursuant to s 157 of the FW Act concerning the following awards:

Children's Services Award 2010;

Social, Community, Home Care and Disability Services Industry Award 2010;

Health Professionals and Support Services Award 2020;

Aboriginal and Torres Strait Islander Health Workers and Practitioners and Aboriginal Community Controlled Health Services Award 2020; and

Pharmacy Industry Award 2020.

[180] We wish to express our appreciation to the parties who participated in this Review for their contributions and to the staff of the Commission for their assistance.

Annual Wage Review 2023-24 [2024] FWCFB 3500 (3 June 2024)

At a glance

Court

Decision date

Source

Judgment (336 paragraphs)

Annual Wage Review 2023-24 [2024] FWCFB 3500 (3 June 2024)

Legislation Cited (6)