From July 1, businesses across Australia will face a significant financial headwind, as three separate cost increases hit simultaneously: a 3.5% rise in minimum and award wages, a mandated lift in the Superannuation Guarantee, and higher payroll tax liabilities due to wage indexing.
This triple cost escalation lands amid an already fragile economic environment for many SMEs, particularly in sectors heavily reliant on award wage workers like hospitality, aged care, retail, and admin services. For many owners, the question isn’t how to pass on the costs, it’s whether they can afford to absorb them at all.
Wage ruling hits the base
The Fair Work Commission (FWC) has handed down its 2025 Annual Wage Review decision: a 3.5% increase to both the National Minimum Wage and all modern award wage rates, effective from the new financial year. This will lift the minimum hourly rate to $24.94 and the annual full-time wage floor to over $51,500.
FWC claims the increase is needed to restore real wages after years of inflation-driven erosion. But small business groups warn the decision feels detached from day-to-day commercial reality.
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COSBOA: Businesses already under strain
According to the Council of Small Business Organisations Australia (COSBOA), it is small business, the largest employer cohort in the private sector, that will be left footing the bill. “Small businesses are facing a cost crisis across energy, rent, insurance and input costs,” said COSBOA CEO Luke Achterstraat. “Today’s decision of a 3.5% increase which is above the current rate of inflation will have ramifications for our small business engine room, many of whom are struggling to make a profit on already razor thin margins.”
It’s not just base pay going up. Every award-linked wage increase also triggers automatic increases in payroll tax, workers comp premiums and superannuation liabilities. “For every dollar increase in the award rate, employers also face higher levels of workers compensation, payroll tax and of course another legislated increase in the superannuation guarantee from 1 July.”
What makes this even more complex, COSBOA says, is that the increase cuts across more than 100 different industry awards and job classifications. Many small businesses lack the HR infrastructure or margin headroom to adjust quickly. “Many owners will need to personally absorb these higher costs, unable to pass on any further price rises to consumers.”
Real-time wage growth already outpacing FWC
While the Commission says it’s catching up with inflation, others argue it’s still behind. Employment Hero CEO Ben Thompson says wages in the real economy are already rising faster than any government decision can match. “Employment Hero’s real-time payroll data drawn from over 2 million verified payslips shows median wages jumped 5.9% last month alone, with teenage pay skyrocketing by 13.4%.
That’s not future inflation pressure. That’s real-time wage velocity.” Thompson warns that the FWC’s once-a-year approach is out of step with how businesses and markets move. He argues small businesses are already paying more to attract and retain staff, this decision simply adds to the pile. “Fair Work is setting wages based on outdated conditions, while small businesses are already absorbing pay hikes just to compete. It’s no wonder SMEs feel abandoned.”
Both Thompson and Achterstraat converge on a core issue: Australia’s poor productivity performance. Wage growth without corresponding productivity gains risks squeezing margins even further and entrenching inflation, especially in low-margin sectors. “We have repeatedly warned that higher wages without higher productivity is a disaster waiting to happen,” Achterstraat said. “Our industrial relations system continues to be a drag on productivity… We need to see less complexity, more certainty and a user-friendly approach that encourages small businesses to hire, grow and reward staff.”
What to do now
If you operate a business employing award-based staff, especially in sectors like retail, food, care, or admin, you need a rapid-response strategy. Here are four immediate actions to take:
- Run financial impact assessments on wage classifications and shift structures.
- Model higher super contributions and check how they compound with payroll tax.
- Audit your prices and margins: consider where cost recovery is possible.
- Invest in tools that lift productivity: especially in scheduling, automation, and staff engagement.
This year’s wage decision may be justified in macroeconomic terms, but its impact lands squarely on the shoulders of employers particularly SMEs. With real-time wage growth already outpacing policy, and rising statutory costs across the board, small business owners are being asked to navigate forward using a system many believe is stuck in the past. As Thompson bluntly puts it, “The question shouldn’t be ‘how much should we raise the minimum wage?’ It should be: ‘why are we still using rear-view data to steer the economy?’”
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