$1.00 Wage Rise as at 29 September 2023. The following were the rates applicable at that time.
COSTS TO THE BUSINESS
Café Workers Compensation Rate 1.176%
Stamp Duty 10%
GST 10%
Superannuation 11%
SUPERANNUATION APPLIED TO WAGE RISE
$1.00 x 11% Superannuation Contribution = $0.11 = $1.11
WORKERS COMPENSATION APPLICABLE TO WAGE RISE
$1.11 x 1.176% Workers Compensation = $0.01176 + GST $0.1 = $1.22176 = $1.22
The effect of the additional Superannuation and Workers Compensation to the $1 pay rise is an additional 22 cents. Note: not all States include Superannuation in the Workers Compensation Wages calculation.
APPLYING THE ABOVE TO A TYPICAL WEEK
38-hour week $1.00 x 38 hours = $38 wage increase.
SUPERANNUATION
$38 x 11% Super = $4.18 = $42.18
WORKERS COMPENSATION
$42.18 x 1.176% Workcover = $0.4960 + GST $0.0496 = $42.7256 = $42.72
Over a year (52 weeks x $38) = $1976 wage rise
Over a year (52 weeks x $42.72) = $2,221.44 cost to the employer
It costs the employer an additional $245.44 per year on top of the $1 per hour wage rise. Which doesn’t sound much, but it all adds up and has to be either passed on to the customer by way of higher prices or absorbed by the business.
MINIMUM WAGE AS AT 2023
Minimum Wage $23.23 per hour or $882.74 per week or $45,902.48
Pay Rise $1.00 = 38 hours $38 x 52 = $1976
$45,902.48 plus $1976 = New annual wage $47,878.48
Tax Brackets | Rate | Old Wage $45,902.48 | New Wage $47,878.48 |
0 – 18,200 | 0% | $18,200 x Nil = $0 | $18,200 x Nil = $0 |
18,201 – 45,000 | 19% | $26,800 x 19% = $5092 | $26,800 x 19% = $5092 |
45,001 – 120,000 | 32.5% | $902.48 x 32.5% = $293.30 | $2878.78 x 32.5% = $935.50 |
Tax Payable |
| $5,385.30 | $6,027.50 |
The Tax paid on the additional $1976 is $642.20
Old Tax $5385.30
New Tax $6027.50
Difference $642.20
The additional Nett take home pay is $1976 less the tax $642.20 = $1333.80
The Government awarded the employee $1976
The Employee nett take home pay is $1333.80
But the cost to the Employer is $2221.44
The Government gets an additional:
Wage Tax of $642.20
Superannuation Tax of $4.18 x 52 = $217.36 x 15% Tax = $32.60
Workers Compensation GST $0.0496 x 52 = 2.5792 = $2.57
Total Taxes Raised $677.37
So, for who whose benefit was it, to increase the minimum wage. Certainly not the employer, the employee got an additional annual take home amount of $1333.80 and yet the Government received $677.37 in new taxes, half the amount the employee got. Whatever your view, you can’t deny that the Government did quite well.
Option 1 – Increase Tax-Free Threshold to $20,000
Tax Free Threshold $18,200
$20,000 – $18,200 = $1,800
$1,800 x 19% = $342 Tax saving
So, if the tax-free threshold had been increased to $20,000, it would mean you would get an extra tax break of $342 in your pocket. Also, you would not have jeopardised your job, as there are no additional superannuation or workers compensation costs borne by the employer.
Option 2 – Increase Tax-Free Threshold to $25,220
Tax Free Threshold $18,200
$25,220 – $18,200 = $7,020
$7,020 x 19% = $1333.80 Tax saving
So, if the tax-free threshold had been increased to $25,220, it would mean you would get an extra tax break of $1333.80 in your pocket, which is identical to the amount you received by increasing the minimum wage. Also, you would not have jeopardised your job, as there are no additional superannuation or workers compensation costs borne by the employer.
Option 2 – Increase Tax-Free Threshold to $30,000
Tax Free Threshold $18,200
$30,000 – $18,200 = $11,800
$11,800 x 19% = $2242 Tax saving
So, if the tax-free threshold had been increased to $30,000, it would mean you would get an extra tax break of $2242 in your pocket. Also, you would not have jeopardised your job, as there are no additional superannuation or workers compensation costs borne by the employer.
The, “It’s only one dollar” means, that the employer has an additional financial burden for each employee of $2,221.44. With five employees that’s an extra $11,107.20, which will have to be passed onto their customers in higher prices. But with a nett annual benefit of only $1333.80 for each employee.
Whereas by simply increasing the tax-free threshold to $25,220 (Option 2) the employee could have been $1333.80 better off with no detrimental effect upon their employer or their employment.
Option 1. The tax-free saving on $20,000 is $342
Option 2. The tax-free saving on $25,220 is $1333.80
Option 3. The tax-free saving on $30,000 is $2221.44
Depending upon which figure you increased the tax-free threshold to, would result in a tax saving to the employee of up to the equivalent of the pay rise or greater. Whereas, by the Government pushing the pay rise, for those paid the minimum wage, the Government would make extra tax $677.37. With an estimated 195,000 workers paid the minimum wage in 2023 that would equate to an additional amount of tax raised of $132 million annually.
So, if it was your choice, which one would you choose. And who really was the beneficiary of this “It’s only a dollar” pay rise.
This is why Conservatives prefer Tax cuts instead of wage increases.
