Planning for Minimum Wage Increases

We keep hearing about a $15 minimum wage, and we know many employers are faced with state or local requirements for an increased minimum wage. We thought reviewing this in detail would be helpful.

Popular Proposal

A recent survey completed by Pew Research found that a significant majority of Americans favor increasing the minimum wage to $15.00 an hour. While traditionally, this support has fallen along party lines, that is no longer the case. This may have been why the state of Florida, which elected a robust Republican ticket in most areas, also saw the passage of a referendum for a $15.00 minimum wage.

In fact, it is more likely for an employee to live in a state where the minimum wage is above $7.25 per hour. Nearly sixty percent of states have a minimum wage exceeding the federal minimum wage. A chart and a map from the U.S. Department of Labor helpfully details this. You likely have employees you must pay more than $7.25 per hour, even if it is not yet $15.00 an hour. This is part of why McDonald’s’ CEO is no longer arguing against a pay hike. The other reason is that many McDonald’s franchises are already paying this to employees. When looking at the Employers Council benchmark wage survey, we see that only 7.7 percent of employers pay less than $15.00 an hour to non-exempt employees.

Pros and Cons

A simple chart of the pros and cons for increasing the minimum wage from economicshelp.org from the United Kingdom also applies to the United States:

Some commentators would like to see the switch to a higher minimum wage to bring about automation across industries, just as the pandemic increased the number of employees working from home. The reason? Higher productivity was often seen when employees began working from home and dispensed with commute time and in-person meetings at various locations. This also happens when automation of basic tasks occurs. In many industries, this automation has not caused a decrease in employees; instead, employers have employees doing things to help customers that they did not do before this innovation. For example, if you automate and get products to customers faster, you may need more buyers to purchase new materials to make different products that those customers now want.

Creating a Plan

While we really cannot predict whether the federal government will raise the minimum wage, it is likely coming to a city or state near you. It is wise to be prepared for such a change, and here are some items to consider:

Efficiencies and work hours – Efficiencies typically come in one of three ways: determining if there are ways the work can be better organized to be done more quickly, implementing automation through software or hardware, and hiring workers whose skill sets more closely match the work to be done. If you are interested in learning how to accomplish this, Employers Council has a class you might be interested in: Improve Team Workflow and Personal Effectiveness. Once a review has been implemented, it may be possible to rein in overtime hours that were once necessary.

Pricing – Fast food chains that recognized the need to pay workers more took a look at their menus and increased the price slightly on popular items. The demand for the items stayed the same; making just a few cents more on those items allowed the chains to maintain their profitability level.

Compensation planning – If you increase the pay for lower-paid workers and then keep other pay the same, wage compression results. This could be a legal risk in states with strict pay equity laws, such as Colorado. It can also create a morale problem in the workplace, leading to turnover, absenteeism, and a drop in productivity. At this point, a review of all workplace positions is in order, and a compensation plan is the best way to do this. Employers Council members have website tools to assist with this process. One such tool is a Compensation Plan Development Checklist. Whether you have an existing compensation plan or not, reviewing the checklist can help you either put a plan in place or see if what you have is adequate.

If you have further questions about how to contend with an increase in the minimum wage, call us – we can help.