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.

• Business tools and resources
• Tips to reduce money pressures for small business
• A Guide to paying your staff correctly