Small business minimum wage requirements – What you need to know

What are the minimum wage requirements?

Minimum wage requirements are the legal minimum amount an employer must pay employees for their work. The Fair Work Commission (FWC) sets these rates to ensure workers receive fair pay for a fair day's work.

As a small business owner, it's crucial to understand that the minimum wage isn't a one-size-fits-all figure. Different industries, job roles, and employee experience levels might attract varied rates. In some cases, award rates or enterprise agreements dictate the pay rate, which can be higher than the national minimum wage.

What is the minimum wage in Australia?

As of 1 July 2024, the national minimum wage in Australia is $24.56 per hour or $934.40 per 38-hour week (before tax). This rate applies to full-time and part-time adult employees not covered by a specific award or enterprise agreement.

Casual employees typically receive a higher hourly rate to compensate for not having entitlements like sick leave or annual leave. The casual loading is 25%, which means casual employees receive $30.70 per hour at the minimum wage rate.

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How is the minimum wage set?

The Fair Work Commission's Expert Panel reviews the national minimum wage annually. Submissions from employers, unions, and other stakeholders are considered to ensure the minimum wage reflects current economic conditions.

Factors influencing the minimum wage include:

• Cost of living: Changes in inflation and living expenses.
• Economic conditions: Trends in employment, productivity, and business conditions.
• Welfare of workers: Ensuring low-paid employees have sufficient income to meet basic needs.

The goal is to balance supporting employees and maintaining a sustainable environment for small businesses.

Why was a minimum wage created?

The minimum wage was introduced to address exploitation and ensure workers receive fair pay for their labour. Historically, workers in low-paying industries were often underpaid, leading to financial hardship and inequality.

The introduction of a minimum wage helped standardise pay, reduce poverty, and improve living standards. For small business owners, it creates a level playing field by preventing unfair competition based on exploiting workers. Paying fair wages isn’t just about compliance; it's also a step towards building a loyal and productive workforce.

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What is the lowest salary in Australia?

The lowest legal salary an employee can receive in Australia is based on the national minimum wage of $24.56 per hour for adult employees. The rates are lower for younger employees and apprentices and vary depending on age and progression in training. For example, junior employees often receive a percentage of the adult minimum wage, reflecting their experience and responsibilities.

How much do 16-year-olds get paid in Australia?

Under the national minimum wage system, junior employees aged 16 receive 47.3% of the adult minimum wage. This translates to $11.61 per hour or $441.87 per week for a full-time role. Casual employees aged 16 would receive an additional 25% loading, making their hourly rate $14.51.

It's essential to check your business's specific award or agreement, as junior rates can vary by industry.

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What happens if you don't pay the minimum wage?

Failing to pay the minimum wage has serious consequences. Employees can report non-compliance to the Fair Work Ombudsman (FWO), which investigates claims and enforces wage payments. If underpayment is proven, the FWO may require you to back-pay employees and impose penalties.

Non-compliance can also damage your reputation, making attracting and retaining talent harder. Beyond the legal risks, underpaying employees can lead to poor morale and high turnover, affecting productivity and customer satisfaction.

Are minimum wage earners subject to tax?

Yes, minimum wage earners are subject to tax. However, the amount of tax paid depends on the employee's total income and applicable deductions. The tax-free threshold in Australia is $18,200 per year, which means employees earning less than this amount typically don't pay income tax.

Income tax is calculated based on Australia's progressive tax rates for those above the tax-free threshold. Employers must withhold tax from employees' wages and remit it to the Australian Taxation Office (ATO). Failure to comply with tax obligations can result in penalties for both the employer and the employee.

Key takeaways

Understanding minimum wage requirements is a fundamental part of running a small business. Ensuring compliance protects your business from legal risks and fosters a positive and ethical workplace culture.

Take the time to familiarise yourself with the award or enterprise agreement relevant to your industry, and keep an eye on updates to the national minimum wage. If in doubt, seeking advice from the Fair Work Ombudsman or a qualified advisor can save you time and money in the long run. You’ll set your small business up for long-term success by prioritising fair pay.