Almost three million Australian workers will get a 4.75 per cent pay boost after the industrial umpire’s annual minimum and award wage review.

The Fair Work Commission’s decision on Tuesday to lift the minimum wage to $1004.90 a week followed the federal government’s call for a “sustainable” real wage rise.

The pay rise was welcomed by struggling workers, but employer groups warned it could drive inflation and strain businesses.

The decision came amid ongoing uncertainty around the Middle East conflict and how long the Strait of Hormuz would remain shut, keeping upwards pressure on inflation.

The increase is above the 4.2 per cent headline inflation rate in the year to April. But the Reserve Bank has forecast inflation to rise to 4.8 per cent by the end of June.

Fair Work Commission president Adam Hatcher said this year’s decision was “particularly challenging”.

He said it wasn’t practical or responsible to award a pay rise above 5 per cent – what is needed to close the real wage gap that has opened up since the Covid-19 pandemic.

“However, we consider that we should at least ensure that modern award-relied employees generally are not worse off in real terms than they were as at July 1, 2025,” Hatcher said.

The new national minimum wage will be $26.44 an hour (up from $24.95).

The commission also made a structural adjustment to the lowest pay classifications to effectively raise the minimum wage relative to the rest of the system.

The decision follows a 3.5 per cent increase in 2025-26. This year’s ruling falls between the range of suggestions from unions and business groups.

In its submission to the commission’s review, the Australian Council of Trade Unions called for a 6 per cent increase, arguing workers were still behind in real terms following the post-Covid inflation spike.

But employer body Australian Industry Group called for a lower rise of 3.9 per cent, arguing the ACTU claim would stoke inflation.

Australian Council of Trade Unions secretary Sally McManus welcomed the decision, saying it was vital for low-paid workers struggling with the cost of living.

“The only spanner in the works, of course, is Donald Trump, and none of us know what he’s going to do,” she said in Sydney.

Employer groups — which argued for a lower rise of between 3.5 to 3.9 per cent — believe the decision will drive inflation and strain businesses under pressure from rising input costs.

“One of the consequences of adding to the costs for businesses is that a number of them will pass that on to consumers in the form of higher inflation,” Australian Chamber of Commerce and Industry chief of policy David Alexander said in Canberra.

While the federal government did not nominate a figure, Treasurer Jim Chalmers had called for a “sustainable” real wage increase.

“It is, in our view, sustainable. It takes into consideration all of these economic considerations that we have been talking about,” he said.

The decision covers about one-in-five employees, but given they tend to be lower paid, it only amounts to 11.2 per cent of the national wages bill, according to commission estimates.

Economists say the decision influences pay rise claims in occupations across the economy, resulting in broader flow-on effects.

AMP economist My Bui said there was a risk wage pressures spilt over into other parts of the private sector and would likely force the Reserve Bank into another rate hike in November, on top of one predicted for August.

“Wage pressures will add to already sticky services inflation, as businesses pass on higher labour and input costs, which have remained elevated amid rising goods prices,” she said.

But ANZ economists said they did not expect the decision to materially alter the outlook for wages or inflation.

Opposition frontbencher James Paterson said it was not sustainable to have inflation and wages growing at such a fast rate.

“That will ultimately lead to all Australians being poorer and probably higher unemployment,” he told Sky News.

The pay rise will kick in from July 1.

-AAP