The minimum wage is increasing: are you ready?
30 March 2022
In line with the annual increases to the minimum wage over the past few years, the adult minimum wage is, again, due to increase this year on 1 April.
From 1 April 2022, the adult minimum wage will rise to $21.20 per hour which is an increase of $1.20 per hour from the current minimum wage set at $20.00. This means it will be illegal for any employees who are entitled to the adult minimum wage to be paid less than $21.20 from 1 April.
At the same time, the minimum wage for starting-out and training employees will also go up from $16.00 to $16.96 per hour.
In this article, I’ll share four important areas employers need to think about to prepare their businesses for the upcoming wage increase.
1. Notify employees: send out variation letters to affect employees
All employees earning the adult minimum wage of $20.00 per hour must be paid at a new rate, that is no less than $21.20 per hour, from 1 April 2022.
The same applies to those employees currently earning the starting-out or training wage rates.
You’ll need to notify your employees who earn minimum wage about this pay increase on Friday 1 April 2022 with a written variation to their existing agreement. You can send this notification via email or letter.
2. Payroll systems at the ready
This may seem like an obvious question but it can be overlooked. So, have you checked in with your payroll manager or whoever manages your payroll system to ensure they’re ready for these changes?
Technology isn’t infallible – even automated payroll systems can make mistakes. And, if you’re still running off a paper-based or manual payroll process, then you must be 100 per cent confident that the wage calculations are correct from 1 April 2022.
3. Contracts and agreements – are they up to date?
Sometimes, in the process of reviewing who’s on minimum wage, you uncover a contract or two that are no longer current – if this happens, don’t panic! It’s a great opportunity to get your record-keeping up to date – and remember that at least you found them, and not the Labour Inspectorate!
4. Managing employee pay relativity
The upcoming minimum wage increase only legally applies to the minimum rate of pay – there’s no requirement that every single employee receives a $1.20 wage increase.
However, you may have some workers who are already earning $21.20 an hour ($1.20 more than the current minimum wage of $20.00). These employees will fall into the minimum pay rate bracket following the increase on 1 April 2022. Despite there being no legal requirement to provide a pay rise here, this can raise issues about how more experienced employees are paid compared to less qualified or experienced workers.
For example, an employee already earning $21.20, who suddenly makes the same income as a less skilled colleague, may feel resentful or frustrated that your company isn’t recognising their seniority or capability. Employees in this situation may be keen to negotiate a pay increase to maintain the relative pay difference.
When figuring out a strategy to manage pay relativity, it’s essential to consider affordability and properly understand the workforce expectations, and how to manage them proactively.
Again, there’s no legal obligation to increase the pay rate for anyone earning at least $21.20 an hour already. But, with an eye on employee morale and workplace dynamics, you could consider the following if pay relativity comes up:
- Increasing an employee’s $21.20 an hour wage by $1.20 an hour (to maintain the relative difference between their salaries and the minimum wage).
- Increase an employee’s rate by an amount that keeps a differential rate and is reflective of individual ability and performance. You’d need to substantiate this increase through a performance review.
- If remuneration increases aren’t affordable for your business at this time, are there other non-cash benefits you can offer your more experienced workers, such as mentoring or training and development opportunities?
All minimum pay changes must appear in the next pay slip after 1 April 2022. It’s possible to delay the increase; for example, if the administrative load makes it impossible to meet the deadline. But you’d still be required to backpay affected employees to 1 April as soon as possible. You should proactively communicate this to your staff if you find yourself in this situation.
As an employer, you’ll need to keep up to date with the latest minimum pay changes and pay all your employees at least the minimum wage. This year’s pay increases may introduce significantly greater wage costs to your business. In this case, you may also want to think about pricing strategies and budget forecasting to account for your higher wage and holiday pay obligations.
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