Employees earning below the Federal Minimum Wage

This report considers explanations for why data show adult employees earning below the hourly Federal Minimum Wage (FMW), including whether identifiable categories of employees fall into this group, and the extent to which this phenomenon is due to data problems. The three main data sources used were the Survey of Employment Arrangements, Retirement and Superannuation (SEARS); the Survey of Income and Housing (SIH) and the Household, Income and Labour Dynamics in Australia (HILDA) Survey. The three main datasets showed that around seven to nine per cent of adult employees with one job earned below the FMW in 2007–08. Compared to all adult employees, the types of employees who were over-represented among those earning below (or just above) the FMW included: women; those aged 21 to 24 or aged 65 and over; employees with low educational attainment; part-time and casual employees; employees in small businesses; those employed as Labourers, Sales workers, or Community and personal service workers; and employees working 60 hours or more. Employees earning below the FMW do not appear to have been a markedly different group to those employees earning just above it; rather there appears to be a gradual shift in the characteristics of employees as one moves further down the wage distribution. The limited evidence on the types of employees who are most likely to be affected by non-compliance is consistent with the patterns that were observed in relation to the characteristics of employees earning below the FMW. Employees being specifically excluded from the FMW, employees working long hours, and employees with salary sacrifice arrangements all appear to be partial explanations for the observed degree of below FMW employment but, particularly in the former case, it is difficult to accurately estimate their effect. There appears to be no single explanation for the phenomenon of below FMW employment; rather the evidence indicates it may be a combination of a number of factors.