As of July 1, Australian minimum wage workers are entitled to an 8.65 per cent wage increase while award workers’ wages will increase by 5.75 per cent, thanks to new policies introduced by the Fair Work Commission (FWC).
The increase, ‘the biggest in history’ according to Treasurer Jim Chalmers, will impact almost three million workers. Any move to increase wages, especially as we contend with a cost-of-living squeeze and some of the most uncertain economic conditions in a generation, should be celebrated.
For businesses, though, it does prompt a series of questions and considerations – particularly as they’re also contending with the same economic pressures as their workers. Which businesses are impacted? What are the short- and long-term effects? How can business owners manage staff costs?
How are businesses impacted?
Because they rely heavily on award workers, the mandatory wage rise will disproportionately impact the retail and hospitality sectors. While there are over 120 industry awards in Australia, four of the five most common, covering the largest number of employees, apply to the retail and hospitality industries.
With so many employees covered by an industry award, retail and hospitality businesses will see their employee wage bills rise considerably. Before the FWC ruling, many hospitality and retail industry bodies had called for a smaller increase, citing the impact on small businesses.
Effects on retail businesses
Of course, wage increase, particularly for lower paid workers is hugely progressive, but also comes at a time when retail businesses are contending with economic pressures and more cautious consumer spending. On top of softening discretionary retail spending, supply chain costs, delivery fees, utilities, rent, stock and materials have increased, and now labour is too.
As a result, many industry commentators fear this will inevitably lead to job losses later in the year. However, there is hope that peak retail season, approaching on the horizon, will help retailers boost their coffers thanks to Black Friday, Christmas and Boxing Day sales.
Effects on hospitality businesses
While the implications for hospitality businesses are similar, there are additional considerations. That’s because hospitality venues have now been subjected to a 10% rise in wages in less than a year. Unlike for retail businesses, a 4.6 per cent-5.2 per cent lift in hospitality wages was deferred until October 2022, so the new rate rises come in quick succession.
According to research, the average profitability of a hospitality business has been negatively impacted by rising costs. Despite an increase in sales, food profitability and beverage profits have decreased by three and two per cent respectively.
Meanwhile, the Restaurant & Catering Association (R&CA) found that almost half of hospitality businesses have experienced a decrease in net profit. The report also found that approximately 40% of business owners worked 20 or more unpaid hours to counteract increasing costs while one in 20 didn’t anticipate their business would be operational in a year.
How can businesses manage staff costs?
Many business owners will now be looking for a way to optimise their staffing costs to reduce the financial impact of the new wage increase. While cutting staff hours may seem like the obvious solution, this may have a detrimental impact. Instead, there are ways to optimise staffing costs, and work more strategically and cost- and time-effectively.
First, businesses should understand the award that applies to their employees. Retailers, for example, will likely be impacted by the General Retail Industry Award, whereas hospitality business’ workers will likely be covered by either the Hospitality Industry (General) Award, Registered and Licensed Clubs Award, Fast Food Industry Award or Restaurant Industry Award.
Understanding what award a business is impacted by, enables business owners to better understand various nuances and triggers in each. For example, business owners can keep an eye out for when overtime applies, as many awards dictate a maximum number of hours per day that an employee can work before overtime is payable. In the hospitality sector, many awards state that junior employees must be paid the adult rate if they are serving alcohol. Many awards state that employees must receive penalty rates if they are not permitted to take a meal break or that higher rates must be paid for weekend work or work considered early or late.
Businesses can use their software to help them, too. For example, through a POS platform like Lightspeed, businesses can analyse their revenue and understand slow and busy days and periods, so they can optimise their roster for every sitting or shopping day. For example, a retailer can likely operate on skeleton staff on a Tuesday, but would need more employees rostered on a Saturday, or during peak season. QR ordering, meanwhile, can drive cost- and time-savings for hospitality businesses by automating tasks and freeing up staff to focus on more valuable, revenue-generating activities.
Ultimately, it’s essential that businesses plan ahead and analyse actuals. Businesses can cost the roster for the week and compare it with an income estimate to obtain a wage cost percentage. This estimation is based on predicted sales, average transaction value and average weekly income per low/mid/high period. A wage percentage is calculated by dividing wages by income. For example, $200 in wages for $5,000 of income is a 40 per cent wage cost. Anything from 25 per cent-50 per cent is industry standard.
Business owners must analyse actual results after the fact, too, asking questions like: Was there unauthorised/unnecessary overtime? Did employees work later than planned? If so, was it because there was a genuine business need? What could be improved? The answers to these questions will help businesses learn how to better manage their costs.
So while the increase to minimum wage will be daunting for many business owners, by taking the time to understand the policies and their impact, and using software and strategy to optimise their staff and costs, business owners will be better placed to navigate the changes.
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