Annual Wage Review 2026: the immediate compliance impacts –and beyond

On 2 June 2026, a Full Bench of the Fair Work Commission (FWC) handed down its Annual Wage Review 2026 decision, announcing a 4.75% increase to modern award minimum wage rates and a 6% increase to the National Minimum Wage (NMW), effective from the first full pay period on or after 1 July 2026.

The decision directly affects approximately 2.8 million employees, around 21.1% of the workforce, who are paid at an applicable minimum wage rate under a modern award. Modern award-reliant employees are concentrated in the accommodation and food services, health care and social assistance, retail trade, and administrative and support services sectors, which together account for over two-thirds of all award-reliant workers.

Key changes

The NMW will increase to $1,004.90 per week (or $26.44 per hour), crossing the $1,000 per week threshold for the first time.

In addition to the general 4.75% increase, the FWC has commenced a structural adjustment to the lowest-paid classifications in modern awards. The C13 rate, the lowest wage rate applicable to ongoing employment, will be phased out in three stages, with the C12 rate ultimately becoming the new minimum floor for ongoing employment. In this first stage, the C13 rate will be increased by an additional 1.2% above the general increase, representing one-third of the difference between the C13 and C12 rates. The C14 entry-level rate will also be increased by the same percentage as the C13 rate to maintain relativities.

Economic context

The FWC acknowledged that its determination was "particularly challenging" this year due to the unusual complexity of the economic environment. The Australian economy encountered capacity constraints in the latter half of 2025, and inflation has accelerated beyond forecasts, driven in large part by the Middle East conflict that commenced on 28 February 2026 and the resulting disruption to global oil supplies.

The FWC concluded that it was "not practicable" in the current circumstances to fully close the real wage gap that has persisted since 2021, but determined that it should at least ensure modern award-reliant employees are not worse off in real terms relative to 1 July 2025.

What this means for employers

1. Immediate compliance steps

Employers must ensure that all award-covered employees are paid at least the new minimum rates from their first full pay period on or after 1 July 2026.

Employers with enterprise agreements should audit their agreement wage rates against the new award minimum. Approximately 4.7% of enterprise agreements provide for wage increases directly linked to Annual Wage Review outcomes, covering about 12.4% of all employees under enterprise agreements and 2.7% of the total workforce. Where enterprise agreement rates fall below the new modern award rates, employers must pay the higher award rate.

2. Enterprise bargaining implications

Employers should be aware that the Annual Wage Review outcome may have indirect effects on enterprise bargaining. The FWC itself noted that the Review's indirect effects include the interaction between increased award rates and the BOOT for approval of enterprise agreements, as well as a broader signalling effect to the labour market. While the FWC concluded that within a reasonable range, the increase will neither encourage nor discourage enterprise bargaining, there is a real risk that a 4.75% mandated award increase will create upward pressure on bargaining claims from unions seeking to obtain material wage increases.

3. Gender pay equity reviews continue

Employers should also note that the FWC's targeted program to eliminate gender-based undervaluation in modern awards will continue. The Priority Awards Review has now been completed, resulting in phased wage increases for children's services employees, dental assistants, pathologists, disability home care workers, pharmacists and a range of other health professionals over the coming years. These are all female-dominated occupations, and the FWC indicated that it expects these increases to result in a further narrowing of the gender pay gap.