Minimum wage rise puts squeeze on retail and hospitality sectors

Retail and hospitality businesses are likely to come under even tighter bottom line pressure following yesterday’s decision to increase the minimum wage by $21.66 per week.

Retail and hospitality businesses are likely to come under even tighter bottom line pressure following yesterday’s decision to increase the minimum wage by $21.66 per week.

The Australian Fair Pay Commission decision will deliver a pay rise of close to 4.15% to the 1.3 million Australian workers whose pay is set by the federal minimum wage or pay scales.

The result is much closer to the $26 a week increase advocated by the Australian Council of Trade Unions than the rise of $10 or less supported by most business groups.

AFPC chairman Ian Harper says the decision is an attempt to balance the increased costs faced by consumers with the need to keep inflationary pressures under control.

“The commission is especially aware of the financial pressures on low-income households at this time. Movements in consumer prices, in particular, have put many low-income households under considerable financial stress,” Harper says.

Australian Industry Group chief executive Heather Ridout says the rise, to take effect from 1 October, will increase pressure on already struggling businesses.

“For employers who are already tightening their belts, the increase in wages of $21.66 will mean they will pay around $27 more after including on-costs such as payroll tax, super and workers compensation,” Ridout says.

Retail and hospitality businesses are likely to be among those most heavily affected by the rise, with 36.2% of all workers who on the minimum wage or pay scales employed in those sectors.

Margins for restaurants, cafes and accommodation businesses are already so tight that most will have little choice to pass on the wage increase in the form of higher prices, according to Restaurant & Catering Australia chief executive John Hart.

For business owners that don’t pass on the rise, the result is likely to be a big drop in their own pay, from the current average of $42,000 for 57 hours work, to below minimum wage levels.

“I’m blown away. The result of this decision is that restaurants will either need to put up the price of an average main course by $1.50 or, if they look to absorb the increase, the wage of the average small business or sole trader running a restaurant will fall below the minimum wage,” Hart says.

Australian Retailers Association executive director Richard Evans says the AFPC decision is risky and will hit retailers already hurting from higher interest rates.

“This minimum wage increase will surely be passed on to consumers, who are already carrying the burden of increased petrol prices and rising interest rates. In addition, this wage rise will now threaten jobs because smaller retailers simply can’t absorb another blow,” Evans says.

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