The Fair Work Commission has delivered its 2025 Annual Wage Review decision, implementing a 3.5% increase to the National Minimum Wage (NMW) – raising it to $24.94 per hour or $948.00 per week (based on a 38-hour week). This significant change took effect from the first full pay period starting on or after 1 July 2025.
For Australian small business owners, this isn't just about paying higher wages – it's about ensuring complete compliance with updated payroll obligations, Single Touch Payroll (STP) reporting requirements, and avoiding potentially costly penalties.
Understanding the Fair Work Commission's 2025 Decision
The Fair Work Commission announced its decision on 3 June 2025, determining the 3.5% increase across both the National Minimum Wage and all modern award minimum wages. This decision was influenced by several key factors:
- Post-pandemic inflation trends requiring wage adjustments
- Real wage declines experienced since July 2021
- The need to balance employee welfare with sustainable business conditions
- Economic recovery considerations for small businesses
What Rates Apply to Your Business?
National Minimum Wage (from 1 July 2025):
- $24.94 per hour
- $948.00 per week (38-hour week)
Modern Award Wages:
- All adult rates under modern awards increase by 3.5%
- Junior, apprentice, and disability rates rise proportionately
- Training wages under the National Training Wage schedule also increase
Enterprise Agreements:
- Base pay rates must not fall below relevant award rates
- Many agreements will require adjustment to reflect the NMW increase
Critical STP Reporting Changes You Must Know
STP Phase 2 Requirements
Under Single Touch Payroll Phase 2, employers must accurately report wage changes through specific income type classifications. Here's what you need to know:
Immediate Reporting Obligations:
- Report new pay rates in the first pay event after 1 July 2025
- Ensure accurate gross wage amounts and PAYG withholding calculations
- Correctly code wage increases under "Gross" income types
- Flag pay rate change events appropriately in your STP reporting
Superannuation Changes: The superannuation guarantee also increased to 12% from 1 July 2025, requiring updated calculations and reporting for all employees.
STP Compliance Deadlines
Your STP reporting must reflect the new rates immediately:
- On or before payday for each pay period
- Include correct gross wages, tax withholding, and superannuation contributions
- Maintain accurate employee classification codes
Payroll Compliance Obligations for Small Businesses
Essential Steps Before Your Next Pay Run
1. System Updates Required:
- Update payroll software settings before the first July pay run
- Configure new minimum wage rates for all relevant employee classifications
- Adjust superannuation calculation settings to 12%
- Test system calculations before processing live payroll
2. Employee Communication:
- Notify all affected employees in writing about new pay rates
- Provide clear effective dates (first full pay period after 1 July 2025)
- Update employment contracts or letters as needed
- Explain any changes to superannuation contributions
3. Documentation Requirements:
- Maintain records of all pay rate notifications
- Keep copies of updated employment agreements
- Document payroll system configuration changes
- Retain evidence of compliance measures taken
Understanding the Penalties for Non-Compliance
Fair Work Act Penalties
The consequences of failing to pay minimum wage are severe:
Corporate Penalties:
- Up to $66,600 per contravention for corporations
- $13,320 per contravention for individuals
- Plus mandatory back-pay orders for affected employees
- Potential litigation by the Fair Work Ombudsman
ATO STP Penalties
Incorrect or missing STP reporting can result in:
- $1,110 to $5,550 per failure for large entities
- Scaled penalties for small businesses
- Multiple penalties for persistent breaches
- Additional compliance audits and scrutiny
Common Implementation Challenges (And How to Avoid Them)
1. Payroll System Configuration Errors
Challenge: Incorrect system settings leading to underpayment or STP reporting errors.
Solution:
- Test all calculations with sample employees before go-live
- Verify award interpretation and employee classifications
- Seek professional payroll software support if needed
2. Cash Flow Management
Challenge: Absorbing increased labour costs while maintaining business viability.
Solution:
- Calculate total impact across all employees in advance
- Review pricing strategies and operational efficiency
- Consider phased implementation where legally permissible
3. Employee Classification Complexity
Challenge: Determining correct award coverage and minimum wage rates for different employee types.
Solution:
- Review all employment arrangements against current awards
- Seek advice on complex classifications (casual, part-time, apprentices)
- Maintain detailed records of classification decisions
4. Enterprise Agreement Adjustments
Challenge: Updating enterprise agreements to reflect minimum wage increases.
Solution:
- Review agreement terms for automatic adjustment clauses
- Consult with employee representatives where required
- Consider formal agreement variations if necessary
Your Complete Compliance Checklist
Pre-Implementation (Complete Before First July Pay Run)
- Review FWC decision and identify applicable rates for your business
- Update payroll software with new minimum wage rates and 12% superannuation
- Verify employee classifications under relevant awards or agreements
- Test payroll calculations with sample employees to ensure accuracy
- Prepare written notifications for all affected employees
Implementation Phase (First July Pay Period)
- Issue written notifications to employees about new pay rates and effective dates
- Amend employment contracts or letters to reflect new rates where necessary
- Process first pay run with new rates and verify all calculations
- Submit accurate STP reports with updated gross wages and withholding amounts
- Confirm superannuation contributions are calculated at 12%
Post-Implementation (Ongoing Compliance)
- Monitor payroll accuracy in subsequent pay periods
- Maintain comprehensive records of all changes and notifications
- Review enterprise agreements for any required formal variations
- Stay informed about any Fair Work Commission updates or clarifications
- Schedule regular compliance reviews to ensure ongoing adherence
Looking Ahead: Additional Changes to Consider
Right to Disconnect Laws
From 26 August 2025, new "right to disconnect" laws will apply to small businesses, adding another layer of employment compliance requirements.
Ongoing Regulatory Changes
Stay alert for:
- Future Fair Work Commission decisions
- ATO STP reporting guideline updates
- Changes to superannuation guarantee rates or thresholds
- Industry-specific award variations
Expert Recommendation: Don't Navigate This Alone
The intersection of minimum wage compliance, STP reporting, and superannuation changes creates significant complexity for small business owners. The penalties for getting it wrong are substantial, and the administrative burden can be overwhelming.
Consider engaging professional support to:
- Audit your current payroll setup against new requirements
- Implement system changes correctly the first time
- Develop ongoing compliance monitoring procedures
- Provide employee communication templates and guidance
Ready to Optimize Your Financial Strategy?
Don't navigate the complex world of Australian tax and finance alone. Our experienced team at D & Y Practice is here to help you maximize your financial position while ensuring full compliance with ATO requirements.
Book a consultation today to discuss your specific circumstances and develop a tailored strategy that works for you.
Disclaimer: This information is general in nature and should not be considered as professional tax or financial advice. Tax laws and regulations can change, and individual circumstances vary. Always consult with a qualified accountant or tax professional before making financial decisions. The D & Y Practice accepts no liability for any loss or damage arising from reliance on this information.
