Addressing Problems with Minimum Wage

by Candice Wolken - March 5, 2019
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From the time it was introduced in 1938, the U.S. minimum wage has sparked controversy.

Is minimum wage a federal issue? Should minimum wage be increased? Are there problems with current minimum wage rates? What about problems with high minimum wage rates?

These questions are never-ending, and everyone in the workforce has a stake in the answers. But they’re especially high stakes for HR and compensation professionals, who must stay on top of changes to the minimum wage and solve minimum wage problems for their organization.

Is Minimum Wage a Federal Issue?

The pros and cons of national minimum wage rates have been debated for years. At present, minimum wage is a federal, state, and local issue. For HR and compensation professionals, this means that they must keep an eye out for changes and updates in all the geographies and pay markets in which they operate.

The current federal minimum wage is $7.25/hour. While the federal minimum wage has been stagnant for a decade, minimum wage rates have been rising in many states, cities, and municipalities. According to a the Society for Human Resources Management, nineteen U.S. states raised their minimum wage threshold at the start of 2019. As a result, HR professionals are increasingly called on to manage the impacts of these changes on their organizations, and to handle any minimum wage issues that arise from these updates.

Not only is minimum wage a federal as well as local issue, it can also be specific to the demographics of the employer. Some recent laws mandating minimum wage increases call for variable rates based on organization size and industry, often in addition to location. In New York, for example, the Port Authority recently approved a $19/hour minimum wage for workers at La Guardia, JFK, and Newark airports – the highest minimum wage in the nation.

Should Minimum Wage Be Increased?

Calls for a $15/hour minimum wage at the federal level have gained momentum recently in an effort to combat problems associated with the cost of living on a minimum wage.

Several large employers have announced self-imposed minimum wage increases, including Amazon’s high profile announcement to raise minimum wage to $15/hour for all U.S. employees, as well as increases at Walmart and Target. Competition for workers is fierce amidst record-low unemployment rates, putting pressure on other organizations to follow suit to stay competitive.

For HR and compensation professionals, the decision to voluntarily increase the minimum wage at their organizations can be a complex one. Numerous organization-specific factors must be considered, from compensation strategy to local market competition to PR efforts and more.

Regardless of whether the changes are required by law or stem from a desire to better compete in the marketplace, increased minimum wages can have ripple effects throughout an organization’s entire workforce.  Implementation requires thoughtful planning to minimize problems with raising minimum wage and minimizing salary compression throughout the organization.

Minimum Wage Problems and Solutions

To effectively mitigate minimum wage problems, employers faced with rising minimum wages in their pay markets should be asking three fundamental questions:

  1. How will we handle salary compression?
  2. How will we manage our current pay structure?
  3. How will these pay changes impact our overall salary budget?

Before making changes to accommodate new minimum wage requirements, HR and compensation professionals must analyze their current pay structures. They must first asses how many employees are below the new minimum wage rate and assess the cost to correct those pay rates, in order to set firm forecasts and budgets for the adjustments.

They must also determine how many grades will overlap when adjustments are made to bring pay up to the new minimum wage rate. They should consider adjusting the distance between grades to accommodate these changes and minimize compression risk.

Prioritizing Minimum Wage Issues

Staying on top of minimum wage increases can feel like a full time job, but there are many resources that HR and compensation professionals can use to help them keep up-to-date on all the latest changes. The Society for Human Resources Management (SHRM) offers many tools and resources for keeping track of minimum wage changes, including customizable alerts that can be tailored to specific pay markets.

Initially, organizations should focus their efforts on becoming compliant with new minimum wage laws in time to meet the effective dates of these laws. Once in compliance, organizations must assess the impacts of these changes on their pay structure as a whole, and develop a plan for addressing resulting pay inequities. Finally organizations must develop messaging that communicates these changes to managers and employees.


Addressing Problems with Minimum Wage

Download our guide on Addressing Problems with Minimum Wage for key takeaways on how to solve minimum wage problems, and consider partnering with an experienced consultant to learn what’s working best in addressing problems with minimum wage.

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