Australia's lowest paid workers will soon get a pay increase of $22 a week.

Key points: Fair Work Commission approves a new minimum wage of $18.29 an hour

Fair Work Commission approves a new minimum wage of $18.29 an hour FWC president acknowledges increase would not lift all employees on the minimum wage out of poverty

FWC president acknowledges increase would not lift all employees on the minimum wage out of poverty Decision angers both employers and unions

The Fair Work Commission (FWC) has approved a new minimum wage of $18.29 an hour, an increase of $0.59 an hour.

That is more than double the increase most employer groups wanted — but well short of the $45 a week boost demanded by unions.

The FWC's president, Iain Ross, said the gradual improvement in the Australian economy meant the commission had an opportunity to "improve the relative living standards of the low paid".

He said international research showed the commission had been too anxious that "modest" increases could discourage businesses from hiring new workers.

And Mr Ross said the $22 wage hike struck the right balance.

"The level of increase we have decided upon will not lead to inflationary pressure and is highly unlikely to have any measurable negative impact on employment," he said.

Mr Ross acknowledged the increase would not lift all employees on the minimum wage out of poverty — particularly single parents with children.

"It will, however, mean an improvement in the real wages for those employees who are reliant on [the minimum wage] and an improvement in their relative living standards," he said.

Unions say decision will keep people in poverty

But the decision has angered both employers and unions.

The head of the Australian Council of Trade Unions, Sally McManus, said it was further evidence that the current wage determination system was "broken".

Ms McManus pointed out that company profits have been buoyant while wages growth has lagged under 1 per cent.

"The Fair Work Commission today made a decision to keep working people in poverty," she said.

"If our current rules can't deliver a decent pay rise, then they need to change.

"The only way that workers can guarantee wage increases and secure employment is to join a union and change the rules."

Employers argue wage increase will be 'devastating'

The Australian Catholic Council for Employment Relations called the increase "woefully inadequate".

"Low income families will still simply not earn enough to provide for their children and lead a fulfilling, enriching life," acting chair Tony Farley said.

"The National Minimum Wage can no longer be described as a living wage."

But employer groups insisted the increase would be "devastating" to businesses struggling in a sluggish retail market.

Australian Retailers Association (ARA) executive director Russell Zimmerman said it would stifle growth and stop businesses from employing more people after the commission's earlier decision to cut some Sunday penalty rates for thousands of hospitality and retail workers.

"With the inherent weakness in today's economic climate, along with tax increases about to hit consumers, this upsetting increase will strongly impede on employment growth within the industry," Mr Zimmerman said.