“Delicate juggling act”: SMEs to balance minimum wage hikes against surging power and raw material costs

Australia’s small and medium businesses are considering how to balance the cost of rising minimum wages against spiking power and raw material costs, after the Fair Work Commission (FWC) handed down a higher-than-expected boost to the nation’s lowest-paid employees.

The FWC yesterday moved to raise the minimum wage by 5.2% to $21.38, or $812.60 a week, resulting in a $40-a-week payrise.

Workers earning the minimum wage under modern awards will see their pay rise by 4.6%, with a minimum weekly increase of $40 a week.

“In effect, modern award minimum wage rates above $869.60 per week will receive a 4.6% adjustment, wage rates below $869.60 per week will be adjusted by $40 per week,” the FWC wrote in its full decision.

The changes will come into effect on July 1, with some exceptions for workers in the aviation, marine tourism, alpine tourism, and hospitality sector.

The FWC noted many business operators in those fields are still struggling to operate, and will only need to hike their minimum award rates from October 1.

Hash Tayeh, founder of the Burgertory chain of restaurants, says the changes will impact approximately half of the company’s 450-strong workforce.

The impending hike will result in a “very delicate juggling act” for the independent chain, Tayeh told SmartCompany, as it aims to balance its expansion plans against rising costs.

Recent upticks in the price of power, and the surge in food prices — including in burger staples like iceberg lettuce — “makes it quite difficult to run our business”, he said.

“We realise the importance of wage increases during these times of high inflation, however we were not expecting a minimum wage rise of this calibre,” Tayeh told SmartCompany.

Nevertheless, Tayeh says it was important to support staff members as their own cost of living soared.

“Our customers are vitally important and we know that if we look after our staff, this will have a very positive flow on affect for our business,” he said.

Business groups warn of rising cost pressures

While many hospitality operators have already increased their wages to attract workers in a highly competitive environment, industry groups representing Australia’s small business community have bristled against the incoming minimum wage increase.

Alexi Boyd, CEO of the Council of Small Business Organisations Australia, said the hike could ripple through to businesses who don’t directly employ workers on minimum wages.

“With the news of this minimum wage rise, some businesses will decide to increase their prices, impacting not just consumers but also the small businesses in their supply chains,” Boyd said.

The Restaurant and Catering Industry Association celebrated the decision to defer the hospitality award increased to October 1, but maintained some small businesses will struggle to absorb the impending wage cost increase.

The Australian Retailers Association CEO Paul Zahra said the 5.2% boost “could send some businesses to the brink”, after the organisation petitioned for a 3.2% hike.

After the Australian Industry Group called for a 2.5% hike, chief executive Innes Willox said the increase “will be difficult to absorb for businesses that are already struggling to cope with big increases in material and energy costs, interest rate rises, supply chain disruptions and labour shortages”.

Small businesses are already gearing up for a 0.5% increase to the superannuation guarantee from July 1, Willox added, along with the elimination of the $450-a-month minimum threshold for super guarantee payments — a decision likely to give young minimum-wage earners superannuation for the first time in their working lives.

And the Australian Chamber of Commerce and Industry, which asked the FWC to consider a 3% minimum wage increase, said the change will slog small businesses still coming up to speed after COVID-19 restrictions.

“Many award reliant business were severely disrupted by the COVID-19 pandemic and are only just beginning to recover,” chief executive Andrew McKellar said.

“Imposing unaffordable wage increases on these small businesses will put jobs at risk, not create them.”

There is evidence to suggest restaurateurs and hospitality providers are still reeling from the pandemic downturn.

The Australian Bureau of Statistics says seasonally adjusted gross operating profits in the hospitality and food service sector fell to $678 million in the March 2022 quarter — a $1.085 billion downturn from the $1.76 billion registered in pre-pandemic March 2019.

However, not all industry analysis points to such a gloomy future.

New research from printing giant Vista and YouGov found 65% of SMEs said they expect to maintain or grow their business in the 2022-2023 financial year, even as two in five brace for increased operating costs.

Social services advocates, unions hail minimum wage rise

Social services advocates also gave a markedly different response, claiming the minimum wage hike will partially shield Australia’s lowest-paid workers from spiking prices.

The Australian Council of Social Service — which represents organisations fighting poverty — welcomed the move.

Diverging from industry groups, acting chief executive officer Edwina MacDonald said boosting the minimum wage will not exacerbate already-high inflation.

“Real wage rates have been stagnant for a decade now,” she said.

“They can and should be increased substantially, at least to compensate for inflation, without triggering a wage-price spiral or higher unemployment.”

The increase was also hailed by the Australian Council of Trade Unions, which said the FWC hike was partially the result of union activism.

The Retail and Fast Food Workers Union went another step further, saying workers deserve greater entitlements as the cost of living soars.

“We deserve so much more and cannot rely on courts or commissions to deliver a living wage,” the union said on social media.