Australia's lowest paid workers will get a $21.60 a week pay rise, which is less than last year but more than employer groups had argued for.
The national minimum wage will rise by 3 per cent to $740.80 a week from 1 July, the Fair Work Commission announced on Thursday.
Unions had been calling for a 6 per cent rise, about $43 a week, while business groups were banking on a more modest increase of up to 2 per cent.
The commission's decision directly affects 2.2 million workers. Source: AAP
"We have decided to award a lower increase this year than that awarded last year," commission president Justice Iain Ross said.
While noting a recent slowing in quarterly gross domestic product growth, the economy had been performing relatively well and employment was expanding, while inflation was subdued.
"We are satisfied that the level of increase we have decided upon will not lead to any adverse inflationary outcome and nor will it have any measurable negative impact on employment," Justice Ross said.
"However, such an increase will mean an improvement in real wages for those employees who are reliant on the NMW and modern award minimum wages and an improvement in their living standards."
Attorney-General and Minister for Industrial Relations Christian Porter welcomed the raise.
"Under the Coalition government, minimum wages have cumulatively increased by 6.9 per cent," he said.
The commission's decision directly affects 2.2 million low paid workers.
The national minimum wage currently stands at $719.20 a week after the commission last year agreed to a 3.5 per cent increase equating to $24.30 per week.
The commission noted women were still disproportionately represented amongst workers on the minimum wage.
"An increase in the NMW and modern award minimum wages will assist in reducing the gender pay gap," the commission's decision said.