Millions of Australians will get a pay rise within weeks after the Fair Work Commission approved an increase to the minimum wage.

Minimum award workers will get a pay boost of 4.75 per cent.

The change will affect 2.8 million people whose pay is set by a modern award, or about 20 per cent of the workforce.

The commission also delivered an increase to the minimum wage, which will rise to $26.44 per hour (from $24.95), or $1004.90 per week (from $948).

This applies to workers not covered by a modern award or an enterprise agreement.

The changes will come into effect on July 1.

This year’s ruling was “particularly challenging because of the unusual degree of complexity” in the Australian economy, Fair Work Commission president Adam Hatcher said.

The outbreak of war in the Middle East and its subsequent pressure on inflation was a key issue, which Mr Hatcher described as a “wildcard”.

Treasurer Jim Chalmers hailed the decision as the “pay rise millions of Australian workers need and deserve”.

“This is the sustainable real wage increase that we called for in our submission to the Fair Work Commission,” he said.

Employment Minister Amanda Rishworth echoed the sentiment.

“This is needed cost of living help for the minimum wage and award-reliant workers, many of whom are in lower-paid roles, work fewer hours, and have fewer financial buffers to fall back on,” she said.

ACTU secretary Sally McManus said the Fair Work Commission’s decision was “a really good outcome for everyone struggling with cost of living”.

The ACTU had earlier proposed a pay increase of 6 per cent in a submission to the commission ahead of its decision.

Asked about the pressure the wage increase could place on businesses, Ms McManus told said business would benefit from the rise.

“First of all, remember your workers are usually your customers as well,” she told reporters.

“And if they go backwards and if they have to cut back, they’re going to cut back on spending.

“The second thing is, if you’re running a business, usually you have the ability throughout the year to adjust your prices depending on what’s happening with not just your competitors, but obviously with inflation.

“Workers on the minimum wage don’t have the opportunity to do that.

“This is the one chance they’ve got.”

But Australian Chamber of Commerce and Industry policy and advocacy chief David Alexander warned the wage increase “will be too much to bear” for some businesses.

“So they’re being asked to wear an increase in their wage costs of 4.75 per cent,” he said. “For some businesses, they will pass that on, and it’ll end up in inflation.

“For others, they’ll wear it themselves – it could be the tipping point for some businesses. “Others will scale back their investment intentions.

“So this is not good news for the business community.”

In its submission to the commission, ACMI had previously requested a “moderate increase of 3.5 per cent”.

The Coalition has backed the pay rise but blamed the necessity of a wage increase on inflationary government spending.

“There is little comfort in a wage increase if Labor’s inflation simply eats it away,” deputy Opposition Leader Jane Hume said in a statement. “The best way to improve living standards for all Australians is to get inflation down, lift productivity and support businesses to grow and employ more Australians.”

Inflation is currently 4.2 per, above the target range of 2-3 per cent.

The Commission is independent of the federal government, from which it receives submissions on any changes to the minimum wage.

The Albanese government previously backed a “sustainable” minimum wage increase but did not commit to a specific number.