Higher wages may have changed the profitability of your construction projects

From 1 July 2026, minimum award wages increased by 4.75%.

For construction businesses, the immediate priority is making sure employees are paid correctly. But updating payroll should not be the end of the review.

Higher wage rates may also affect the profitability and cash flow of projects that were quoted or contracted before the increase took effect.

The cost is greater than the hourly wage increase

A higher base rate can flow through to other employment costs, including:

• Overtime and penalty rates
• Allowances
• Superannuation
• Payroll tax
• Workers compensation premiums
• Leave entitlements and leave loading

This means a 4.75% increase in an employee’s minimum wage does not necessarily translate to only a 4.75% increase in the total cost of employing them.

For example, the updated hourly pay rate for a Level 3 bricklayer undertaking residential construction work is $32.64 per ordinary hour, rising to $48.96 for the first two overtime hours and $65.28 after that.

If the employee works 38 ordinary hours and four overtime hours in a week, the direct wage cost is approximately $1,468.80. That is around $66.60 more than the equivalent weekly cost before the 4.75% wage increase.

Across ten employees, this could add more than $34,000 to annual wage costs before increases to superannuation, leave, payroll tax and workers compensation are taken into account.

For a construction business with several projects already underway, these additional costs could materially reduce the margin expected when the work was originally quoted.

The impact can be particularly significant for construction businesses with large workforces, regular overtime or projects with many labour hours still to be completed.

Existing projects may need to be reviewed

A project may have been profitable when it was quoted, but that does not mean its expected margin remains unchanged.

Consider a project with 5,000 labour hours remaining.

For a Level 3 bricklayer, the increase in the ordinary hourly award rate is approximately $1.48. After 12% superannuation, the additional cost is around $1.66 per ordinary labour hour. Across 5,000 remaining hours, that represents an additional cost of approximately $8,300, before leave, payroll tax, workers compensation and overtime are considered.

Across several active projects, the effect can quickly become material.

Construction businesses should review:

• The labour hours remaining on each project
• The new hourly cost of each employee or trade classification
• Expected overtime, allowances and travel costs
• Superannuation and other employment on-costs
• Whether labour assumptions in the original quote are still realistic
• The revised gross margin expected from each project

The aim is to identify the financial effect before the project is completed.

Fixed-price contracts may carry greater risk

Businesses working under fixed-price contracts may have limited ability to pass increased labour costs on to the customer.

Whether additional costs can be recovered will depend on the contract, including any rise-and-fall, escalation or variation clauses.

Where costs cannot be passed on, the business may need to absorb the increase. That makes updated cost-to-complete reporting particularly important.

Without reviewing the remaining costs, a business may continue operating under the assumption that a project is performing well, only to discover at completion that much of its expected margin has disappeared.

New quotes should use the full employment cost

Future pricing should reflect more than the employee’s base hourly rate.

When calculating the labour component of a quote, construction businesses should consider the complete cost of employing the worker, including:

• Base wages
• Superannuation
• Allowances
• Expected overtime or penalty rates
• Leave and public holidays
• Payroll tax, where applicable
• Workers compensation
• Administration, vehicles, tools and other overheads

It may also be appropriate to include a contingency where a project will run across another wage review period or where the timing of the work is uncertain.

Do employees already paid above the award need an increase?

The 4.75% increase applies to minimum award wages from the first full pay period starting on or after 1 July 2026.

An employee who is already paid above the relevant minimum rate may not automatically be entitled to a 4.75% increase. However, the business must confirm that the employee’s existing pay remains sufficient to meet all applicable award, contractual or enterprise agreement obligations.

Employers should check the correct award, classification, allowances and employment arrangements for each worker rather than assuming that an above-award hourly rate covers every entitlement.

Where to check current award rates

Employers can use the Fair Work Ombudsman’s Pay and Conditions Tool to check minimum pay rates, overtime, penalty rates, allowances and other entitlements.

Fair Work also publishes downloadable pay guides for individual awards.

Before applying a rate, businesses should confirm:

• Which award covers the employee
• The employee’s correct classification
• Whether they are full-time, part-time, casual, daily hire or weekly hire
• Which allowances, loadings or penalty rates apply
• Whether an enterprise agreement or employment contract affects their entitlements

Construction businesses may employ workers covered by several different awards, depending on the trade and the work performed. Employers should check each role rather than assuming one award applies across the entire workforce.

Visit the Fair Work Ombudsman website and use the Pay and Conditions Tool to check the current rates that apply to each employee. Where coverage or classification is unclear, seek workplace relations advice.

Questions construction businesses should ask now

Following the wage increase, business owners should consider:

1. Have our payroll rates and allowances been updated correctly?
2. What is the new total employment cost for each worker?
3. How many labour hours remain on our current projects?
4. Are those projects still expected to achieve their target margin?
5. Do any contracts allow increased costs to be recovered?
6. Should future quotes, charge-out rates or contingencies be updated?
7. Will higher payroll costs create additional cash flow pressure?

A healthy project pipeline does not always guarantee healthy profitability. Revenue may remain strong while higher labour costs gradually reduce the margin earned from each job.

Reviewing project budgets now can help construction businesses identify pressure early, adjust future pricing and make better-informed decisions about the work they take on.

Bonerath & Co. can help construction businesses assess the financial impact of higher employment costs, review project profitability and update cash flow forecasts for the year ahead.

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