When can employer absorb general pay increase?

Author: Harrison HR | Blog

The Annual Wage increase, effective from 1 July, affects minimum wage rates; so, how does this impact on an employer that adjusts wages at a different time?

Q: The majority of our employees are covered under the Manufacturing Award and the Clerks Award. It is the company’s policy that wages are reviewed annually at the end of each calendar year. We read recently that there had been a decision increasing award rates of pay from 1 July. Does this decision mean the company has to pass on the increase immediately, instead of at the end of this year?

A: The National Minimum Wage Order 2012 was handed down by Minimum Wage Panel which increased, among other amounts, the minimum wage rates in the modern awards by 2.9%, operative from the first pay period commencing on or after 1 July 2012. Allowances were increased by the applicable formula in the relevant modern award.
The Order would have immediate effect on each employee’s wage where the current wage rate is less than 2.9% above the previous award wage. Where an employee is receiving an over award payment that is at least equal to, or greater than, the Minimum Wage Order increase, the employer can absorb the increase without breaching the minimum wage provisions of the applicable modern award.

If overaward payments . . .

Most modern awards contain an ‘absorption clause’ that allows an employer to absorb new monetary obligations — occurring in a modern award or arising from an annual wage review — into over-award payments that are being paid by the employer.
The clause usually provides that ‘nothing in this award requires an employer to maintain or increase an over award payment’.
Provided that each employee’s wage equals, or is greater than, the relevant minimum award wage rate at any point in time, the employer would not be in breach of the applicable modern award and can undertake a review of the employee’s wages at the end of the year.

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