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Understanding wage inflation

Understanding wage inflation

Managing rising costs is a daily challenge; and perhaps the biggest one is payroll. This includes wages for your staff, any allowances, and superannuation.

As a business owner, you would know that an appropriately rewarded workforce is essential under Australian law. It also means you are less likely to have staff turnover which is something you want to avoid because hiring staff involves its own on-costs.

What is wage inflation?

Wage inflation occurs when a pay increase is awarded in the annual national wage case decided by the Fair Work Commission (FWC). The increase goes to staff who are employed under the relevant Award and is paid from 1 July each year. The amount is usually related to the current rate of the Consumer Price Index (CPI) or inflation to staff covered by the relevant Award.

Wage increases can also occur as part of an Enterprise Bargaining Agreement (EBA) or individual contracts which covers those staff not covered under the Award. To see what pay rates should be paid for your staff, you can check with the Fair Work Ombudsman.

How does this affect my business?

The pay increases set out by the FWC and an EBA are legislated, so you are obligated to pay the increase to your employees. While a pay rise adds to the take home pay for your staff, which in turn feeds back into the economy with their spending on goods and services, it can create a strain for some businesses.

What can I do to ease the impact of annual wage increases on my business?

Every business, where possible, must plan for those unexpected issues that can affect daily business, such as supply chain disruptions through accidents, a pandemic, staff illness or something even worse.

At least the timing of the wage increase is known, so it is possible to plan ahead. To ensure your budget will allow for the pay rise you can consider such things as making sure you reduce inefficient costs, try to streamline some processes, such as moving manual tasks to digital tools or applications. You could even consider increasing your prices or other fees and charges.

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