Industry groups say minimum wage increase puts more pressure on struggling small businesses

Key industry groups representing small businesses have expressed disappointment at the 3.75% award wage announced today by the Fair Work Commission, saying it will intensify pressure on struggling SMEs.

The Council of Small Business Organisations Australia (COSBOA) said today’s decision means more pressure for small businesses already weathering a perfect storm.

COSBOA CEO Luke Achterstraat said small businesses seek to provide rewarding, well-remunerated jobs but rising costs and sinking productivity puts businesses further at risk.

“The levy has broken for many small businesses with rising energy, rent, insurance and borrowing costs. This increase of 3.75% to wage costs when annual productivity is at 1.2% does not add up or bode well for jobs.”

The National Retail Association (NRA) had advocated for the commission to exercise restraint, given the current growth rate in retail turnover sits at 1.98%, the lowest in 40 years.

Rising employment costs for small businesses

Today’s decision to increase minimum wages will take effect at the same time as a scheduled increase in the superannuation guarantee by 0.5%, from July 1.

The Australian Retailers Association (ARA) said today’s decision combined with the superannuation increase, means the increase in wages for business will be 4.25% from July 1.

ARA CEO Paul Zahra said today’s announcement will increase pressure on struggling retailers, particularly small businesses.   

“With discretionary spending slowing and operating costs rising across the board, wage increases without productivity improvements place businesses, particularly small businesses under significant pressure and can ultimately lead to price increases.”

“Wage growth is important; however, we have consistently advocated that any increase must reflect the context of inflation moderating, the decline of labour productivity and the cost of doing business challenges,” said Zahra.

COSBOA said employment costs also included super, workers’ compensation and payroll tax.

“A $50 increase in wages means a $59 increase in total costs for small businesses,” said Achterstraat.

“Owners will be forced to pass on these costs which means higher prices and inflation. And where they are unable to do so, they face the insidious decision of reassessing staff levels and possible job losses.”

Retailers’ cost of doing business challenges

NRA Interim CEO Lindsay Carroll said their surveying found 78% of retailers highlighting wage costs as one of the top three constraints to their business’ success in 2024.

“This wage increase will only amplify the extreme cost of doing business challenges being felt by retail businesses, and many may be forced to reconsider hours of trade, reduce labour, or worse close up shop,” said Carroll.

“Our recent retail sentiment report shows 84% of Australian businesses expect profitability to be significantly worse over the next year, and the commission’s decision is sure to exacerbate this expectation.”

Archterstraat said it was easy for politicians to welcome rising costs when someone else is paying for it.

“Particularly in labour-intensive industries like hospitality, retail and services, labour costs can represent almost half of the overall operating costs.”

“Small business owners are struggling with 43% currently not breaking even. Owners are paying themselves less than the average salary and working longer than the median to keep the lights on.”

The current operating environment for small business operators is extremely tough, with ASIC’s latest Insolvency Statistics showing business insolvencies in NSW up 61% from a year ago.

“We urgently need better policies that promote productivity and innovation to ensure strong wage growth is sustainable. Failure to do so will only push more small businesses to the wall,” said Achterstraat.

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