Faced with rising wage costs, most Australian employers aren't reaching for the redundancy lever, they're reaching for the efficiency one.
New data from the Australian HR Institute's September quarter 2026 Work Outlook shows that 39% of businesses are now seeking productivity improvements in direct response to the Fair Work Commission's 2026 increases to the National Minimum Wage and modern award rates, which took effect on 1 July. That makes it the single most common response employers report. Close behind, 30% plan to raise the price of their goods or services to cover the extra cost.
Productivity tops the list
AHRI CEO Sarah McCann-Bartlett says the productivity response suggests businesses are trying to solve the problem from the inside first. But she's careful not to overstate how easy that is in practice. Improving productivity, she notes, "is often easier to identify as an aspiration than to deliver in practice, especially where organisations are already facing cost pressures, workforce shortages or limited management capacity." In other words, plenty of employers may be aiming for efficiency gains without a clear plan for how to get there.
Behind those two leading responses sits a longer list of cost-management moves. Twenty-three per cent of employers plan to reduce overtime, and 21% expect to simply absorb the cost through lower profits. Smaller shares are looking at reducing training spend (14%), cutting hours (13%) or pulling back on investment (11%).
Job cuts stay rare
One interesting finding is that job losses aren't as widespread as you might expect. Just 8% of employers plan to cut jobs due to the wage increases, and 10% say it won't affect their workforce at all. According to McCann-Bartlett, this suggests that most businesses are viewing wage growth as a challenge to be managed, rather than a reason to reduce their workforce. Instead, they're focusing on adjusting their pricing, boosting productivity, and making internal workforce changes to absorb the costs.
This all sits against a backdrop of rising pay expectations more broadly. Employers now expect wages to grow by an average of 3.4% over the next 12 months, up from 3.1% in June, with private-sector expectations (3.6%) running ahead of the public sector (2.8%). McCann-Bartlett points out that this increase "comes at a time when employment intentions have softened," a combination that keeps labour costs firmly on the agenda even as hiring plans cool.
There's also a flow-on effect worth watching for businesses with supervisors or managers on the books. Just over 40% of employers plan to maintain or increase existing pay differentials between award-wage staff and the people managing them, largely by lifting management pay in step with the minimum wage rise. But more than a quarter plan smaller increases for managers, or none at all, which McCann-Bartlett warns could weaken the financial incentive for staff to take on people-management roles at a time when many organisations are already finding those roles hard to fill.
For SME owners, the practical read here is that price rises and efficiency drives are now mainstream responses to wage growth, not a last resort. If a business hasn't already worked out where it sits on that spectrum, between absorbing costs, raising prices or genuinely finding productivity gains, now is the moment to make that call deliberately rather than by default.