Workers on modern awards will receive a pay rise from 1 July 2026, but the real wage gap since 2021 remains only partially closed
The Fair Work Commission has handed down its Annual Wage Review 2026 decision, ordering a 4.75% increase to modern award minimum wage rates, along with a targeted structural uplift for the country's lowest-paid workers, as it attempts to balance a cost-of-living crisis against mounting economic uncertainty driven by the Middle East conflict.
The increases will take effect from 1 July 2026.
The headline rate increase of 4.75% applies to minimum wage rates across all modern awards, lifting the benchmark C10 classification and the wages of approximately 2.8 million Australians (around 21.1% of the workforce) who are paid at a modern award rate.
The national minimum wage (NMW) has been increased to $1,004.90 per week, or $26.44 per hour, in line with the C13 classification rate, which is the lowest rate applicable to ongoing employment in the modern award system.
Beyond the general increase, the Commission has introduced a structural adjustment specifically targeting workers on the C13 and C14 wage rates – the lowest classifications in the modern award system. As foreshadowed in last year's decision, the C13 rate is being phased out over three stages, with the C12 rate set to become the new minimum floor for ongoing employment.
In this first stage, the C13 rate receives an additional increase of approximately 1.2% on top of the general 4.75% rise – representing one-third of the gap between the C13 and C12 rates. The C14 entry-level rate rises by the same percentage to maintain its relativity. The result is a new minimum for ongoing employment of $1,004.90 per week, and a new entry-level floor of $978.10 per week, or $25.74 per hour, for roles lasting no more than six months.
The Commission estimates these structural changes will directly benefit around 100,000 of Australia's lowest-paid employees.
Why the Commission landed at 4.75%
The decision acknowledges the extraordinarily difficult economic context in which it was made.
Until February 2026, Australia's economic performance was described as "sound", with healthy GDP growth, rising business investment, moderate wages growth, and a return to productivity gains. Then two developments disrupted the picture: the Reserve Bank of Australia (RBA) raised interest rates three times this year in response to inflation climbing back above its target band, and a Middle East conflict that erupted in February caused significant global fuel supply disruptions.
The conflict drove retail petrol and diesel prices sharply higher from early March 2026, accelerating the consumer price index (CPI) from 3.7% for the year to February 2026 to 4.2% for the year to April 2026. The RBA now forecasts headline inflation will reach 4.8% for the year to June 2026, with the Australian Government's Budget forecast even higher at 5%.
In that environment, the Commission said it was "not practicable or responsible" to award an increase sufficient to fully close the real wage gap that has opened since July 2021 – which would have required a rise of more than 5%. The decision states the 4.75% increase is designed, at minimum, to ensure modern award-reliant employees are "not worse off in real terms than they were as at 1 July 2025."
For workers above the C13 rate, however, the Commission acknowledged their wages will still sit below the real value they held on 1 July 2021. It expressed hope that, should RBA and Budget forecasts for inflation returning to the target band by June 2027 prove accurate, the 2027 Review "will provide an opportunity for this real wage gap to be closed entirely."
Who is affected and where
Modern award-reliant employees make up 21.1% of the Australian workforce, according to May 2025 Australian Bureau of Statistics (ABS) Employee Earnings and Hours (EEH) survey data. More than 60% of this workforce is female, more than 70% work part-time hours, more than half are employed casually, and over a third are classified as low paid.
Four industry divisions account for more than two-thirds of all modern award-reliant employees:
- Accommodation and food services (22.8% of the modern award-reliant workforce) – where almost 66.6% of employers pay over half their workforce at award rates, the highest of any sector
- Health care and social assistance (19.3%)
- Retail trade (13.8%)
- Administrative and support services (11.9%)
The three modern awards with the highest concentrations of reliant workers are the Social, Community, Home Care and Disability Services Industry Award 2010 (SCHADS Award – 14.3%), the Hospitality Industry (General) Award 2020 (13.1%), and the General Retail Industry Award 2020 (12.6%).
Matthew Dickason, CEO of Hays APAC, said the decision would be welcomed by lower-income workers who have borne the brunt of stagnant wage growth. He pointed to data from the Hays Salary Guide showing 62% of Australians earning less than $79,000 reported little to no meaningful salary growth, compared with 36% of those earning above $80,000.
But Dickason cautioned that the increase also sharpens a tension already playing out across Australian workplaces. "Employers are increasingly focused on their capacity to absorb higher labour costs in a period of still-elevated inflation and uneven demand, while employees face ongoing cost-of-living pressures," he said.
Hays research shows employers are anticipating average salary increases of 3.8% over the next year, while half of workers feel underpaid despite having received a pay rise. For organisations that cannot compete on salary alone, Dickason said the pressure is now on to offer more.
"Those that cannot compete on salary alone will need to place greater emphasis on career progression, skills development and broader employee benefits to maintain engagement and retain talent," Dickason added.
David Price, CEO of Peninsula Australia and New Zealand and group business development director at Peninsula Group Global, warned the true cost impact for employers will exceed what the headline figure implies.
"The impact extends well beyond base rates of pay," Price said. "Flow-on increases to penalty rates, overtime, allowances and loadings mean the total cost of employing staff will rise more sharply than the headline figure suggests."
He said sectors including hospitality, retail and care – where award reliance is highest – face immediate pressure on budgets and workforce planning. Price also flagged compliance as a pressing concern, noting that with approximately 2.8 million workers affected, even minor errors in classifications, pay calculations or system updates carry significant risk.
The outlook for small businesses is particularly acute. "Unlike larger organisations, small businesses have fewer levers available to offset rising costs, meaning changes of this scale can have a disproportionate impact," Price said. "For many small business owners, the priority now will be understanding the full impact of the increase and ensuring they are prepared to respond effectively while remaining compliant."
Gender pay gap implications
Because the modern award-reliant workforce is female-dominated, the Commission noted the 4.75% increase, which exceeds projected wages growth for the workforce as a whole, is likely to make a "some contribution" to narrowing the aggregate gender pay gap.
The Commission separately confirmed it has now completed its Priority Awards Review, which will phase in wage increases for workers in female-dominated occupations including children's services employees, dental assistants, pathologists, disability home care workers, pharmacists, and a range of other health professionals. These increases are being implemented in stages through to 2030.
Proceedings are also underway for nurses and flight attendants, and the Commission has confirmed it will progress a review of all professional classifications in modern awards before the 2027 Review.
What this means for HR leaders and employers
For HR professionals and payroll teams, the key dates are clear: all modern award increases take effect from the first full pay period on or after 1 July 2026.
Employers in Accommodation and food services, Retail trade, and Health care and social assistance face the most direct impact, given the high concentrations of award-reliant employees in those sectors.
The phasing-out of the C13 classification adds a structural compliance layer. The Commission has confirmed it will initiate separate proceedings later in 2026 to begin restructuring classification descriptors in affected awards, including the Hospitality Award, to prepare for the second and third stages of the C13 phase-out. HR teams in those industries should monitor the Commission's award variation determinations closely.
