Millions of Australian workers will receive one of their largest real pay rises in years after the Fair Work Commission upped minimum wages by 3.5 per cent, delivering the country’s lowest paid an extra $32 a week.

About 180,000 people will see their hourly rate increase from $24.10 to $24.95 from July 1 because of Tuesday morning’s ruling by the industrial umpire, but its consequences extend far beyond those on the absolute lowest wages to all workers covered by an industry award.

The commission’s pay panel said that pay for the fifth of Australian workers on industry minimum pay rates had gone backward since 2021 because of inflation, but that price rises had been brought under control.

“We are satisfied that the level of wage increase we have determined is sustainable,” it said in a statement.

In the case of modern awards, the benchmark C10 award rate of pay has declined by 4.5 percentage points relative to inflation as measured by the consumer price index.

But what does that mean for the economy? Which workers will this affect? And how much money will they get?

Australia’s industrial system has minimum pay rules for 121 different industries, from aviation to health and the law.

According to the federal government, up to 2.9 million workers have their pay set through those rules. That includes about 180,000 who are on the absolute national minimum wage, which is $24.10 and will be $24.95 when the increase starts on July 1.

The award system also includes workers on much higher pay, such as airline pilots earning almost $220,000.

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All of those workers, who are concentrated in industries such as hospitality, retail and the service sector, will have their pay automatically rise by 3.5 per cent.

That means a childcare worker on the minimum hourly rate will get an extra 85 cents an hour whereas the captain of a large airliner will get an extra $3.88.

Other workers will miss out. They include people whose pay is higher than award minimums, set through enterprise bargaining agreements, are self-employed or in jobs that are too senior to be covered by an award, such as high-level managers and professionals.

Tuesday’s decision announced by Fair Work Commission president Adam Hatcher said the pay panel had considered relative living standards, needs of workers, workforce participation, economic competitiveness and gender equality.

The commission also considered the Reserve Bank of Australia’s assessment that the nation’s inflationary episode was over, having spiked in 2022, and that said inflation had sustainably returned to the target band of 2-3 per cent.

“The continuation of this inflationary episode has meant that over the last three annual wage review decisions the Fair Work Commission has repeatedly deferred taking any action to reverse this decline in real wages out of the concern this might result in the persistence of higher inflation,” he said.

“The result has been that living standards for the employees dependent on modern award wages have been squeezed and the low paid have experienced greater difficulty in meeting their everyday needs.”

Hatcher said this was a key factor in the commission’s decision to award a real increase in the minimum wage.

“We are concerned that if this opportunity is not taken ... the loss in the real value of wages which has occurred will become permanently embedded.”

The Fair Work Commission sets the minimum wage every year before July 1. Last year, the commission announced a 3.75 per cent increase.

The commission’s pay panel sets the minimum wage each year to give the lowest-paid workers an increase in income, balanced against factors including the jobs market, inflation and growth in the economy.

Chief executive of business group the Australian Chamber of Commerce and Industry Andrew McKellar – who suggested the commission opt for a smaller a 2.5 per cent wage increase – said the increase was generous and risked increasing inflation.

“It is a bump above inflation and it comes on the back of stronger increases over the past two years,” he said. “For businesses that are most vulnerable, particularly small and medium size businesses in sectors like retail, restaurants [and] cafes … an increase of this magnitude will be very difficult for them to swallow.”

However, Australian Council of Trade Unions secretary Sally McManus, who wanted a 4.5 per cent increase, welcomed the decision as a “great outcome”.

“3.5 per cent means [the Fair Work Commission is] starting to catch up again, and that makes an enormous amount of difference in terms of people’s bills, people’s ability to pay for the basics,” she said at a press conference in Melbourne.

“I do think that the government’s argument that a real wage increase is economically sustainable was something the commission listened to, and I do believe that 3.5 per cent does fit with what the government was arguing, and that means that people are getting ahead.”

Workplace Minister Amanda Rishworth said the Fair Work Commission’s decision was consistent with the government’s submission.

“We argued for an economically sustainable real-wage increase for our lowest-paid workers,” she said. “This decision will have a positive impact on workers … that rely on our award system.”

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