Opinion: FWC wage rise decision may push struggling SMEs into reducing headcounts

Employment Hero is supportive of wage rises and the prosperity of both employees and employers. We know that thriving, robust economies create great opportunities for businesses and employees alike.

With this in mind, we feel obliged to comment on the FWC wage rise decision as it seems at odds with the data in our Employment Hero SME Employment Index, which indicates private sector wages have outpaced inflation.

April’s Index found that median hourly wages increased by 8.1% in the last year. With the Index’s new analysis of hours worked, we know this is in part because people are working more and partly because wages have increased due to the talent shortages affecting many industries. The latest annual inflation data is 6.8%.

The FWC has now approved a 5.75% increase in all award rates creating an effective 8.6% rise in the national minimum wage. This 8.6% increase is a result of ending an alignment between the national minimum wage and the C14 manufacturing award. Although an estimated 184,000 Australian workers will see an 8.6% boost to their pay, more than 2.75 million workers will experience an increase of 5.75 percent or more.

We are fully supportive of better outcomes for employees and employers. Employees earning more is a great thing and we know the positive impact this has on society. We’re committed to this by developing a product that improves the quality of life for people by helping them save thousands annually; employees using our Swag app get significantly more value from their salary with access to benefits and cashback resulting from our $75 billion of purchasing power. We use technology and our purchasing power to provide much better financial outcomes for employees, without any increased cost to employers.

With all this in mind, there is risk in this FWC decision for employees and employers alike; firstly that such a large increase could fuel a wage-price spiral and secondly that it could increase unemployment.

We are conscious of short-term gains that may ultimately produce long-term pain for employees; Employment Hero’s Index shows wages are already outpacing inflation and we are concerned this decision will exacerbate the decline in employment growth reported in our data. Some employers will have no choice but to reduce their employee numbers.

It is also important to consider the consequences of the FWC decision beyond the financial hit to SMEs. Employers already struggle with the Australian employment law minefield. How many small business owners are going to get caught out with the admin burden required for this change? Thankfully, our platform will be updated to assist our customers and help them remain compliant.

This is little comfort however to employers who will face even more pressure now with the FWC decision. Businesses are facing economic headwinds and the pressures of inflation; further wage rises that ultimately cause a wage-price spiral or unemployment benefit no one, especially not employees.

Ben Thompson is the co-founder and CEO of Employment Hero.