The raise will take effect from the first full pay cycle starting on or after July 1, 2025.

As the first real wage increase since 2021, it’s a win for workers – though business advocates are unhappy. Organisations like Cosboa, ACCI, and the AI Group generally wanted no more than a 2.5 per cent increase.

“Today’s decision of a 3.5 per cent increase – which is above the current rate of inflation – will have ramifications for our small-business engine room,” said Cosboa CEO Luke Achterstraat.

What will this really mean for business?

The wage rise will only apply to about 20 per cent of the workforce, according to CreditorWatch Chief Economist Ivan Calhoun. If your employees are on individual contracts, you won’t have to foot the bill. You may, however, see a spending increase – typically a wage rise increases consumer spending and promotes some economic growth.

On the other hand, business advocates are worried about the impact on small businesses specifically – particularly because the raise coincides with an increase to the super guarantee, also from July 1.

Cosboa CEO Luke Achterstraat said many owners will need to personally absorb the higher wage costs if they are unable to pass them on to customers.

“Someone needs to pay here, and overwhelmingly that will be small business,” said Achterstraat.

There’s also the matter of ongoing uncertainty from trade and tariffs, plus continued low productivity growth. Calhoun said that these factors likely restrained the Commission from an even higher wage rise, but the burden on businesses will still increase.

“Living costs and business costs remain very elevated and have been a very large part of the pressures on many businesses in this cycle,” he said. “The rise makes it more important that businesses pursue productivity improvements.”

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Employment and Workplace Relations Minister Murray Watt said the proposal responds to industry lobbying efforts. It comes as the Fair Work Commission reviews a push to allow retail managers to opt for higher fixed annual salaries instead of variable penalty rates.

Watt expressed alarm over the proposed changes. “If successful, these applications by employer groups would reduce the overall income of workers by thousands of dollars each year,” he said.

But business groups have backed the application, which was submitted by the Australian Retailers’ Association (ARA).

“It sounds pretty reasonable to us, from a business point of view,” said Australian Chamber of Commerce and Industry CEO Andrew McKellar on Sky News in February. “In a lot of cases, these awards really aren’t modern, but here’s a chance to introduce some flexibility.”

Another part of the ARA’s proposal is a new “simplified” general retail industry award, which Chief Industry Affairs Officer Fleur Brown says will remove some of the “enormous burden on small to medium businesses in particular” when it comes to keeping track of different retail pay rates.

How could these potential changes impact small-business employers?

Some business groups are worried that legislating award rates could cause additional monetary difficulties for small businesses.

“If wage increases aren’t linked to productivity gains, they’re inherently inflationary and that means we risk seeing living standards decline further,” said Business Council Chief Executive Bran Black.

On the other hand, if employees get the legal right to choose between annual salary and variable hourly penalty rates, this could also introduce more complexity for small-business employers.

“This is something they would have to look at – whether they can accommodate that flexibility with a small workforce,” said Andrew McKellar.

Council of Small Business Organisations Australia CEO Luke Achterstraat expressed support for a simplified awards system.

“In the retail sector alone, employers must navigate 994 different pay rates across 96 pages just to ensure their employees are paid correctly,” he said.

“Red tape and complexity is undermining the viability of Australian small businesses. It’s not sustainable.”

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The submission goes a step further than prior years’. Previously, Labor (filing submissions as the federal government) had recommended that real wages of low-paid workers simply not go backward. Now – in a sign that the election campaign is heating up – the party is pushing for a real wage increase.

Labor says the change would help around three million workers across the country and be “both economically responsible and fair”. 

An increase in minimum and awards wages would have an tangible impact on small-business owners – who have already seen median wages grow 5.3 per cent over the past year. Though the proposed measure would be great for workers – and potentially lead to increased spending at small businesses – some small-business owners who are already cash-strapped may be looking on with concern.

“When wages rise faster than productivity, it puts employers in a bind – especially those without the scale or pricing power to absorb higher payroll costs,” said Ben Thompson, CEO and Co-Founder of Employment Hero. “Many small businesses may be forced to reduce hours, pause hiring, or in some cases, reassess their viability altogether.”

But higher wages can also lead to increased productivity, pointed out Chris Wright, Professor of Work and Labour Market Policy at the University of Sydney. In an essay penned for The Conversation, the labour market expert suggested that workers who feel they are paid fairly may be more likely to work harder – and less likely to leave their employer and necessitate a costly rehiring process.

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The proposed ‘payday super’ change will require employers to pay superannuation to employees every pay cycle, instead of just quarterly.

If the bill passes, all employers – including small businesses – must pay super with every pay cycle from July 1, 2026. 

When the proposal was first announced last year, it was met with concern from both SMEs and peak bodies. The fear was that more frequent super payments would stretch small-business resources – time and money already in short supply – even thinner.

On the other hand, the Federal Government says the move will benefit the retirement incomes of millions of Australians by helping deter unpaid superannuation.

“While most employers do the right thing, the Australian Taxation Office estimates $3.6 billion worth of super went unpaid in 2020–21,” said Treasurer Jim Chalmers in a statement last September.

What happens if you can’t pay super on payday?

Under the current proposed legislation, super contributions will need to arrive in employees’ super funds within seven calendar days of payment for an employee’s ordinary hours (“ordinary hours” does not include additional allowances, like bonuses or overtime).

If the super payment is not fully processed within the seven-day window, the employer will be penalised – and heavily at that. The exposure draft proposes a default amount of 60 per cent of the employee’s superannuation shortfall.

The Council of Small Business Organisations Australia (COSBOA) expressed concern around the seven-day timeframe, which it says is “unrealistic”.

“Super payments move through multiple banking and clearing house stages before reaching super funds,” said COSBOA Chair Matthew Addison. “At present, payments can take several business days to clear, and many transactions require additional time to reconcile.”

Moreover, the exposure draft states that if a super payment is rejected, it’s the employer’s responsibility to rectify and resubmit the payment within the original seven-day timeframe. As it stands, only about 1-2 per cent of super payments are rejected, requiring additional employer verification. However, more frequent super payments would also mean more frequent instances of rejected payments. According to COSBOA, the increase could create massive added administrative burdens for small businesses.

The peak body also criticised the fact that employers will be penalised for long processing times and super rejections in the first place – as both processes are largely out of their control.

“Super funds change their bank details, clearing houses have delays, and rejected payments may not be returned for months. Yet, under this law, employers will still face penalties,” Addison said. “That’s simply unfair.”

The payday super bill appears as part of a wider Government push to crackdown on unpaid employee entitlements. Earlier this year, deliberate underpayment of employees became a criminal offense.

Small Business Superannuation Clearing House to be closed

The Government’s announcement that it would close the Small Business Superannuation Clearing House – also from July 1 – received similar backlash. The clearing house is a free online service provided through the ATO that allows small-business owners to manage and pay superannuation contributions easily.

The ATO urged SME owners to consider alternative options such as commercial or super fund clearing houses or payroll software.

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The new laws, which came into effect on January 1, 2025, made intentional underpayment of employees a criminal offense. All small-business employers are now subject to the new legislation.

The FWO has emphasised that the tougher laws only apply to intentional underpayments.

“Genuine mistakes will not be prosecuted under the new criminal underpayment laws that commenced on 1 January,” said Booth.

The FWO has released a new Voluntary Small Business Wage Compliance Code to help small-business employers comply with the law. If employers make efforts to comply with the Code, the FWO will not refer them on for criminal prosecution.

The Code takes into account that many small-business employers struggle to navigate complex industrial relations laws, often resulting in accidental underpayments. 

What is the Wage Compliance Code, and how do I comply with it?

The Wage Compliance Code is a list of actions that employers can follow to ensure they are compensating employees fairly.

The Code includes steps like “working out correct pay rates” and “seeking information from a reliable source about paying employee entitlement correctly”. If an employer takes actions like these, it’s unlikely they will intentionally underpay employees.

The Code is not a checklist, meaning that small-business employers do not have to satisfy all items. Rather, the FWO will look at steps a business has taken to comply with aspects of the Code.

“For instance, if a small-business employer proactively undertook an audit of their payroll compliance, and, having found any inadvertent failures to meet their obligations, promptly responded with full back-payments and fixing their systems to prevent further issues, this is an example of conduct that would suggest compliance with the Voluntary Code,” Booth explained.

The FWO has also released a Guide to help small-business employers understand and access the Code’s protections. 

Penalties for intentional and unintentional offenses

Employers found to have intentionally underpaid employees now face a maximum of 10 years imprisonment. Maximum penalties of up to three times the amount of the underpayment and $8.25 million can apply.

Employers who have unintentionally underpaid employees can still be subject to civil remedies, the FWO emphasised. 

“Employers who breach workplace laws must remember – the Fair Work Ombudsman can still bring a civil litigation (civil penalties have never been higher), issue a Compliance Notice or accept an Enforceable Undertaking, where criminal prosecution is not applicable,” Booth said.

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1. Intentionally underpaying employees will become a federal crime

From 1 January 2025, intentional underpayment of wages or entitlements can be a criminal offense. Small-business employers will be subject to this legislative change.

ISB has previously reported on small businesses accidentally underpaying workers due to misunderstandings. We heard from small businesses and experts alike that the complex IR system can lead to mistaken underpayments. 

In response to these concerns from the community, the Fair Work Ombudsman has introduced a Voluntary Small Business Wage Compliance Code to help small businesses avoid criminal prosecution. The Code includes steps like “working out correct pay rates” and “seeking information from a reliable source about paying employee entitlement correctly”. If these steps are satisfied, then it’s unlikely that the employer will be found to have intentionally underpaid employees.

2. Tax and BAS agents will be under stricter ethical and operational requirements

Tax and BAS agents will have new obligations next year. These will apply from 1 July 2025 for tax practitioners with 100 or less employees, and 1 January 2025 for all other tax practitioners.

For small businesses, this will mean that your tax agents will be under stricter ethical and operational requirements. According to the Tax Practitioners Board, these include keeping proper client records, having quality management systems in place, and keeping clients informed.

3. “Introductory” classifications can only apply to employees for a limited time, under some awards

Some awards will have new rules for introductory classifications early next year. These classifications can now only apply for a limited time.

If you’re unfamiliar with introductory classifications, these refer to the first stage of a job, i.e. in an induction or training period. They often allow an employer to pay an employee below minimum wage, under the assumption that they are still gaining the basic skills and experience required for the job. The new laws will mean that employees can only be in this introductory stage, with below-minimum-wage entitlements allowed, for a limited period. 

The new time limit on introductory classifications varies between affected awards, but it will be applicable for a maximum of six months. 

A list of affected awards is available here. For all affected awards bar the Horticulture Award, the changes will take effect on 1 January 2025.

4. The ‘right to disconnect’ will apply to small businesses

From 26 August 2025, small-business employees will have the right to refuse work-related contact outside of regular business hours.

The laws already apply to businesses with over 15 employees, but are reportedly not having much of an impact. According to a survey by Indeed, 79 per cent of employees are still fearful of disconnecting from work-related messages after hours.

Additionally, many small businesses say they rely on flexible hours and integrated work schedules – meaning they have no set working hours. The legislation may therefore not be relevant to their working lives either.

Recent changes to know

A couple of key pieces of legislation have been passed in these last few weeks of 2024. These include a crackdown on unfair trading practices, a new banking code of practice, and new legislation making the reporting of cybersecurity incidents mandatory.

The post The 2025 legislative changes that small businesses should know appeared first on Inside Small Business.

So says the latest SmartMatch Employment Report. The latest report noted that ‘wageflation’ remains a major cause for concern. September’s data revealed annual wage grew at 3.8 per cent, outpacing September inflation (CPI) at 2.1 per cent. The report pegged the median hourly wage at $42.20, which it noted as reflecting sustained wage growth across most sectors.

Construction & Trade Services led the hourly wage growth trend with a notable 8.4 per cent annual growth, while Science & Technology saw slower gains at 2.8 per cent, indicating a rebalancing across traditionally volatile sectors.

Worked hours are up

Meanwhile, average hours worked showed slight improvement after months of decline, with a 2.2 per cent increase month-on-month and a 1.3 per cent annual rise, signalling tentative productivity gains as businesses focus on efficiency.

With regards to employment types, casual employment saw a sharp rise in hours worked, up 13.3 per cent month-on-month, which the report interprets as an indication of businesses embracing flexible staffing options. In fact, casual wages grew 0.5 per cent monthly and 3.4 per cent quarterly, while full-time annual wage growth dropped by 0.9 per cent compared to August 2024.

Despite these positive developments, Ben Thompson, CEO and Chief Economist at Employment Hero reminded Australians to not get complacent.

“SMEs aren’t out of the woods yet and are still struggling with the rising cost of operating,” Thompson said. “Our data indicates that while we are seeing early signs of stability, the cost of labour and continued wage pressures present a difficult balancing act for Australian businesses. As SMEs gear up for the end-of-year season, managing these rising costs without stalling productivity will be essential to economic resilience in the coming months.”

“Our workforce is at a critical inflection point: the signs of economic recovery are emerging, and inflation is slowly coming down, however, the issue of unsustainable wage growth threatens to prematurely stunt this recovery. Now is the time for SMEs to be cautiously optimistic in the lead-up to the holiday season, which will be pivotal in determining the stability of Australia’s workforce and economy,” added Thompson.

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Last week, the Fair Work Ombudsman (FWO) announced it had recovered $473 million in underpaid wages for nearly 160,000 workers in 2023-24, securing its largest penalties yet in its 15-year history.

In a recent statement, the FWO shared that $330 million of this amount came from large corporate sector businesses, which it named as a “priority area” for payment recovery.

Regarding the remaining $100+ million from non large-businesses, the regulator reaffirmed its commitment to assisting small-business employers and employees. Notably, it said that small business requests for advice on pay and entitlements rose by eight per cent in the 2023-34 period, underscoring the confusion many face around compliance.

Small-business employers seeking advice on pay obligations

According to the FWO’s annual report, half (50%) of requests to the Employer Advisory Service (EAS) came from businesses with five or fewer employees. The report also highlighted that “many” of these businesses were first-time employers.

“Most new employers have low levels of workplace relations knowledge and do not understand the basic principles of employing staff under an award,” the report stated.

The figures suggest that start-up founders and small-business owners, especially those new to the landscape or with limited resources, may struggle in particular with compliance.

ISB spoke to small-business owners and financial experts to explore the issue of complex regulations.

“Running an e-commerce business myself, I’ve seen how easy it is to get tangled in the complexity of pay rates,” said Chris Bajda, founder of Groomsday. “We had a situation in the early days where a contractor was accidentally underpaid because we misclassified their role. It wasn’t intentional, but it was still wrong. As soon as we realised what had happened, we corrected it by paying them the difference and making sure it didn’t happen again.”

Do employers underpay workers on purpose?

While there are exceptions, underpayment by SME employers is often unintentional, stemming from a lack of understanding of obligations.

Fred Van der Tang, who heads up payroll compliance system PaidRight, attributed some of the problem to the complexity of Australia’s awards system.

“The system’s complexity is compounded by the fact that a single business might have employees covered by multiple awards, each with different entitlements,” he said.

For small-business owners, this can make tracking entitlements like base wages, penalties, overtime, and leave allowances challenging.

“Navigating award compliance requires time, attention, and often external expertise, which many small businesses find hard to afford or access, leading to unintentional errors in worker payments,” Van der Tang added.

Luke Chapman of Simpro, which works with many small trades businesses, noted that small businesses often rely on outdated payroll methods like spreadsheets, paper timesheets, and emails, which can lead to inaccuracies. “This can lead to all kinds of inaccuracies or missing data, often resulting in workers being paid incorrectly.”

On the other hand, overreliance on digital solutions can also create issues. Stacey Price, a small-business owner and accountant, warned that accounting software can sometimes give employers a false sense of security.

“Accounting software makes people think you click three buttons and payroll is done, but that is far from the truth,” Price said. “Innocent mistakes happen because people think the software will tell them if things are wrong. That is usually not the case unless you are using a specific payroll program linked to awards to find the correct pay rates.”

What to do if you’re confused

If you’re struggling to understand your payroll obligations, you can contact the FWO’s Employer Advisory Service (EAS), which provides small-business employers with tailored written advice on payments, entitlements, awards, and record-keeping.

Checking out the FWO’s small-business showcase centre, or seeking professional advice, can also help keep your business compliant.

“Being an e-commerce entrepreneur has taught me that you can’t just rely on your own understanding when it comes to things like payroll,” said Bajda. “We’ve had to bring in outside help to stay on top of it all. At the end of the day, it’s about respecting the people who keep your business running.”

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The figures are a marked change from just a few months ago in July, when median hours worked were stable across most sectors.

The behaviour is an indicator of “labour hoarding”, according to the HR service provider. “Labour hoarding” refers to when businesses hold on to their staff to avoid dealing with labour shortages and recruitment costs in the future.

Ben Thompson, Employment Hero’s CEO and Chief Economist, expressed concern about “wageflation”, where wage increases outstrip economic output. 

“Wage growth is outpacing productivity, which is completely unsustainable, particularly for small businesses folding under the surging cost of operating,” said Thompson.

“It’s becoming harder for business owners to strike the right balance between maintaining staff and managing wageflation, which means more Australians will inevitably be grappling with job insecurity and inconsistent wages. Wageflation over the long term creates problems on both sides of the market, particularly where a paypacket boost today could spell a layoff in the future.”

Uneven wage growth across Australia

Employment Hero found vast wage growth disparities across the nation. While ACT saw a 6.9 per cent YoY increase, South Australia lagged behind with a 2.6 per cent increase. Meanwhile, the Northern Territory’s growth went backwards by 0.2 of a percentage point.

Meanwhile, employment growth was led by SMEs in Western Australia and Queensland, at 7.2 and 5.3 per cent respectively. 

Finally, SMEs in healthcare and community services had the fastest employee growth of all sectors with a 6.8 per cent YoY increase, while retail, hospitality, and tourism lagged behind, with a 1.5 per cent increase.

“It’s also alarming to see the disparity between economic activity across the nation,” said Ben Thompson. “While some regions and sectors are thriving, others are facing a lethargic economy where productivity ultimately suffers. When jobs growth across the country is uneven, this creates ripple effects for the communities who are most impacted.”

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On Wednesday, the Treasury announced a proposed change in superannuation policy that is set to become effective on July 1, 2026. The change will require employers to pay Superannuation Guarantee (SG) contributions to employees with every pay cycle, instead of just quarterly.

COSBOA is concerned that a shift will increase administrative and financial burdens on small businesses.

“Employers will be required to make up to 13 times as many payments, handle up to 13 times as many transactions, and ultimately incur up to 13 times the cost to ensure super reaches their employees accounts under this new arrangement,” said COSBOA CEO Luke Achterstraat. “This is an overwhelming ask, particularly for small businesses already struggling with tight margins.”

Penalties for delayed payments

On top of increased obligations, employers could pay if super funds fail to process payments quickly. If super payments don’t arrive in employee’s accounts within seven days, employers will be charged interest.

“This change appears to overlook the reality of running a small business,” said Achterstraat. “It is not the employer’s fault if others in the chain can’t process promptly.”

Government to shut down crucial free resource

The proposed policy change will coincide with the closure of the ATO-managed Small Business Superannuation Clearing House.

The free online service lets employers pay employee super contributions in one transaction, regardless of the number of funds. Its closure leaves 250,000 small employers to make alternative, potentially costly, arrangements.

COSBOA is urging the government, parliament, and opposition parties to reconsider the proposed changes to superannuation payment obligations.

“Small business is the backbone of the Australian economy,” added Achterstraat. “Imposing additional costs and compliance requirements on them will only serve to undermine their ability to thrive and support their communities.”

Previous research by ScotPac revealed that two-thirds of SMEs are concerned about the impact of the rising Superannuation Guarantee on their businesses. Now, they may face even greater challenges when it comes to meeting superannuation obligations.

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