3.5% — That's the Number Every Employer Needs on Their Radar

On 3 June 2025, the Fair Work Commission handed down its Annual Wage Review decision: a 3.5% increase to the National Minimum Wage and all modern award minimum wages, effective 1 July 2025.

The National Minimum Wage now sits at $24.95 per hour (or $948.10 per week for full-time employees). Casual employees on the minimum wage must receive at least $31.19 per hour, inclusive of the 25% casual loading.

This decision directly affects approximately 2.61 million workers — around 20.7% of Australia's workforce — who are engaged under modern awards or the National Minimum Wage.

Why the Commission Increased Wages

The Full Bench acknowledged that since July 2021, employees on award minimum wages have experienced a real decline in the value of their pay. The benchmark C10 rate — the standard classification used as a reference point across awards — has dropped 4.5% in real terms due to inflation outpacing wage growth.

In short, low-paid workers have gone backwards. The 3.5% increase is the Commission's response to that sustained decline in living standards.

What This Means for Employers

If you employ anyone under a modern award, you need to have updated your pay rates from 1 July 2025. This isn't optional — it's a legal obligation under the Fair Work Act 2009.

Here's what should already be in place:

• Updated base rates for all award-covered employees, including part-time and casual staff
• Recalculated overtime, penalty rates, and allowances — these are typically derived from the base rate, so they change too
• Revised payroll systems to reflect new rates across all relevant classifications
• Updated employment contracts or pay schedules where rates are specified

Common Mistakes Employers Make

Every year, the same errors come up after the annual wage review:

1. Assuming salaried employees aren't affected. If a salaried employee's pay is set to absorb award entitlements, you need to check that the salary still covers the new minimum rates — including overtime and penalty rate components. An annualised salary that was compliant last year may not be compliant this year.

2. Only updating the base rate. Award wages flow through to overtime, shift loadings, allowances, and superannuation calculations. Updating just the hourly rate and missing downstream amounts is a compliance risk.

3. Delaying the change. The new rates apply from the first full pay period on or after 1 July. There is no grace period. Underpayment from day one creates a back-pay liability.

The Cost of Getting It Wrong

Underpaying employees — even unintentionally — can result in Fair Work Ombudsman investigations, back-payment orders, and penalties. For serious or repeated breaches, penalties can reach up to $93,900 per contravention for a company under the current penalty framework.

The reputational damage is often worse than the fine. Public naming by the Fair Work Ombudsman is standard practice for enforceable undertakings and court proceedings.

What You Should Do Now

If you haven't already completed your wage review, do it immediately. Specifically:

1. Identify every employee covered by a modern award
2. Check each employee's classification level against the updated pay guide for their award
3. Recalculate all derived entitlements (overtime, penalties, allowances)
4. Update your payroll system and run a test pay cycle
5. If there's any shortfall since 1 July, calculate and pay the back-pay owed

If you're unsure whether your employees are award-covered, or which award applies, that's a compliance gap that needs addressing urgently.

Need Help?

Industrial HR specialises in award interpretation, pay compliance, and workplace relations for Australian businesses. If you need a pay rate audit or help navigating the annual wage review changes, get in touch.