The Annual Wage Review Decision 2025–26: What It Means for Your SME from 1 July 2026
By Vas Papadopoulos, Principal Consultant, HR Excellence Partners
If you employ staff in Australia, one of the most important compliance events each year is the Fair Work Commission’s Annual Wage Review.
On 2 June 2026, the Fair Work Commission handed down its Annual Wage Review 2025–26 decision, confirming a 4.75% increase to the National Minimum Wage and modern award minimum wage rates, effective from the first full pay period commencing on or after 1 July 2026.¹²
For SME business owners, this decision means more than simply increasing pay rates. It is an opportunity to review payroll compliance, employment contracts, award classifications, and workforce costs before the new financial year begins.
What Has Changed?
The Fair Work Commission has determined that:
- The National Minimum Wage will increase by 4.75%.
- The new National Minimum Wage will be $26.44 per hour, or $1,004.90 per week based on a 38 hour week.
- Modern award minimum wage rates will also increase by 4.75%.
- Additional structural adjustments will apply to some of the lowest paid classifications under the modern award system.¹ ²
Approximately 2.8 million Australian workers are expected to be affected by the decision.³
For businesses that employ staff under modern awards, the increase applies automatically. It is not optional.
When Do You Need to Apply the Increase?
The increase takes effect from the first full pay period starting on or after 1 July 2026.⁴
For example:
- If your weekly pay period runs Monday to Sunday, the increase will apply from Monday 6 July 2026.
- If your fortnightly pay period starts on Thursday 2 July 2026, the increase applies from that date.
The exact commencement date will depend on your payroll cycle.
What Should SMEs Do Before 1 July?
1. Update Payroll Systems
The first and most obvious step is ensuring payroll software reflects the new minimum rates.
Businesses using payroll platforms should confirm that award rates have been updated and correctly mapped to employees.
Paying the wrong rate because of a payroll setup issue is still an underpayment.
2. Review Award Classifications
One of the most common compliance issues I see in SMEs is not the pay rate itself, but the classification level being applied.
An employee may be paid above the minimum hourly rate but still be underpaid if they are classified incorrectly under their award.
Review:
- Which award applies
- The employee’s classification level
- Any allowances, penalties, overtime, or loadings
This is particularly important for businesses covered by the:
- Clerks Award
- Retail Award
- Hospitality Award
- Professional Employees Award
- Vehicle Repair, Services and Retail Award
3. Review Annualised Salaries
Many SMEs pay staff a salary rather than an hourly rate.
Now is the time to confirm that salaries remain sufficient to absorb:
- The increased award rates
- Overtime obligations
- Penalty rates
- Allowances
A salary that was compliant on 30 June may not be compliant on 1 July.
4. Check Employment Contracts
Review employment agreements that reference:
- Specific pay rates
- Award classifications
- Salary absorption clauses
- Set off provisions
Where contracts contain fixed remuneration amounts, consider whether updates or variation letters are required.
5. Communicate With Employees
A simple communication to staff explaining the wage increase helps build trust and demonstrates that the business is proactively managing its obligations.
Employees appreciate transparency, particularly when changes directly affect their pay.
Why Getting It Wrong Matters More Than Ever
The risks associated with underpayments have increased significantly in recent years.
From January 2025, Australia introduced a criminal offence for intentional wage theft under the Fair Work Act 2009. Employers who deliberately underpay employees can face substantial penalties, including criminal prosecution.⁵
While genuine mistakes are treated differently from deliberate conduct, regulators expect employers to take reasonable steps to ensure compliance.
The days of simply saying “I didn’t know” are largely over.
The Voluntary Small Business Wage Compliance Code
There is some protection available for genuine small business employers.
The Voluntary Small Business Wage Compliance Code was introduced alongside the criminal underpayment provisions to recognise that small businesses can make honest mistakes while attempting to comply with workplace laws.⁵
The Code encourages businesses to:
- Take reasonable steps to understand obligations
- Keep accurate employment records
- Seek advice when unsure
- Rectify mistakes promptly when identified
Businesses that can demonstrate they have acted reasonably and in good faith are in a far stronger position if an issue arises.
In practical terms, maintaining compliant contracts, reviewing awards regularly, keeping payroll records current, and seeking professional advice are all sensible risk management measures.
Use This Decision as an Annual HR Health Check
The Annual Wage Review is not just a payroll event.
It is one of the best opportunities each year to assess whether your HR foundations remain compliant.
Ask yourself:
- Are employment contracts current?
- Are award classifications correct?
- Are payroll systems configured properly?
- Are policies up to date?
- Are employee records complete?
For many SMEs, a short compliance review before 1 July can identify issues long before they become expensive problems.
How HR Excellence Partners Supports SMEs
At HR Excellence Partners, we help SME businesses navigate wage increases, award compliance, payroll obligations, employment contracts, and broader people management challenges.
Our support includes:
- Modern award compliance reviews
- Employment contract reviews and updates
- Payroll and classification audits
- HR compliance health checks
- Employee relations advice
- Ongoing fractional HR support tailored to your business needs
- HR System implimentations – which save you time and money!
The cost of a compliance review is often significantly less than the cost of a Fair Work claim, back payment issue, or regulator investigation.
If you would like support preparing for the 1 July 2026 wage changes, feel free to get in touch.
Vas Papadopoulos
Principal Consultant
HR Excellence Partners
References
- Fair Work Commission, Annual Wage Review 2026: https://www.fwc.gov.au/hearings-decisions/major-cases/annual-wage-reviews/annual-wage-review-2026
- Fair Work Ombudsman, Minimum Wages: https://www.fairwork.gov.au/pay-and-wages/minimum-wages
- Reuters, Australia lifts minimum wage by 4.75% as inflation reaccelerates (2 June 2026).
- Fair Work Ombudsman, Annual Wage Review: https://www.fairwork.gov.au/about-us/workplace-laws/annual-wage-review
- Fair Work Act 2009 (Cth) and Fair Work Ombudsman guidance regarding criminal underpayment offences and the Voluntary Small Business Wage Compliance Code.
