Millions of low-paid workers will get a pay rise next month after the Fair Work Commission agreed to a 3.5 per cent wage boost.

The pay rise will impact 2.9 million workers across Australia and will come into effect on July 1.

The ruling from the Fair Work Commission splits the difference between the 4.5 per cent pay rise the unions were calling for and the 2.5 per cent boost the Australian Chamber of Commerce and Industry were asking for.

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The 3.5 per cent jump is higher than inflation and lifts the national minimum wage from $24.10 an hour to $24.94 an hour.

While the consumer price index is at 2.4 per cent, the Reserve Bank predicts prices will rise by 3.1 per cent over the year to June 2026 — the period covered by the wage decision — as government energy subsidies wind up.

Secretary of the Australian Council of Trade Union (ACTU) Sally McManus earlier said the 4.5 per cent jump, which equates to an extra $41.22 a week, was the difference between spending everything you earn or being able to save.

“It’s about whether you can keep up with your bills or not, it’s whether or not your life gets slightly better, whether it stays the same or whether it goes backwards. It’s everything,” she told AAP.

“When you’re on those wages, you’re not saving money. Everything you earn, you spend.”

In its submission to the commission’s review, the ACTU argued the industrial umpire needed to deliver a pay bump substantially higher than the inflation rate to address years of workers falling back in real terms.

Productivity growth in the sectors that dominate industry award coverage, such as hospitality and retail, is up 1.2 per cent, allowing extra value to be passed onto workers, McManus argued.

“The commission previously has said, ‘yes, these workers need to catch up, we’ve just got to wait for the right time’. We say now is the right time,” McManus said.

The wage rise of 3.5 per cent is slightly less than the 3.75 per cent increase the commission handed down last year.

Employer groups warned businesses are struggling to get by and a 4.5 per cent rise, on top of a legislated increase to mandatory superannuation contributions coming into effect, would’ve force many to lay off staff or shut their doors.

The Council of Small Business Organisations Australia, which represents smaller employers like cafes and restaurants that are particularly sensitive to changes in award wages, argued for a rise of 2-2.5 per cent.

Anything more “would place unsustainable pressure on small businesses, potentially leading to reduced employment opportunities, business closures, and broader economic harm,” the council argued in its submission.

But McManus said businesses are struggling because consumers aren’t spending enough money, not because wages are too high.

The federal government called for a “sustainable” wage rise above inflation that would not harm the economy, without nominating an exact figure.

The 3.5 per cent rise was previously predicted by AMP chief economist Shane Oliver, who said the jump — about midway between union and employer demands — would give workers a real wage rise, but not so high as to add to the risk of a wage price spiral.

— With AAP