Author: Tom Wardrip
President Biden signed a number of executive orders in his first days in office, including Executive Order 14003, "Protecting the Federal Workforce." This order states, "the Director of the Office of Personnel Management shall provide a report to the President with recommendations to promote a $15/hour minimum wage for Federal employees." This order is considered the first step toward requiring federal employees and federal contractor employees receive a minimum wage of $15 an hour. Days later, the "Raise the Wage Act" was introduced in the House of Representatives to raise the minimum wage to $15 an hour by 2025.
The growing movement in the United States to increase the minimum wages paid to workers goes by a number of names: Push to $15, Move to $15, Living Wage, Poverty Wage. President Biden’s executive order brings the issue into the national spotlight. Companies must understand how the minimum wage movement will impact their organizations.
A few large employers have taken a national stance on the issue and declared their own minimum wages. As more and more large employers announce these moves, other organizations and lawmakers will feel pressure to follow suit. The executive order seeks to lead through the example of the federal government. Is your organization considering joining the fray and increasing the minimum wage offered to employees? What will it take to do this? What kind of return will the organization receive for the additional money spent in payroll?
Getting Started: Consider Your Market
So you want to move your employees to a higher minimum wage, but what wage should you move to as a starting point? As a start, take a look at your market. Is there a large employer in your area that just announced a move to $15 an hour? Is the local government working on an increase to the minimum wage? Do you want to match the proposal in the "Raise the Wage Act"?
Employers need to think about compensation as one part of the bigger picture of total organizational wellbeing. Integrated compensation and benefits programs, often called total rewards, are defined as the total of all components given to an employee for their service. Typical components include: base pay, benefits, retirement contributions, and incentives. Cash compensation typically makes up the largest percentage of the total rewards picture, but organizations can choose to emphasize other aspects of workforce wellbeing as a market differentiator. Unfortunately, many employees never look past the cash compensation or base pay, especially in the jobs that are sensitive to minimum wage increases.
Setting a Compensation Philosophy is an important first step when considering how to pay your employees. Many organizations articulate this philosophy through formal documentation; others do it in practice. Any organization looking at raising their minimum wage is adopting a philosophy to pay an above market premium to its workers.
Implementing A New Minimum Wage
Once an organization has established a new minimum wage as a goal, it’s up to leadership to determine how to make it happen. This often involves a meeting with the Human Resources Department of the organization to begin understanding the cost to achieve this goal.
Option 1: Increase employees to new Minimum Wage only
In its simplest form, all an organization has to do is identify all employees who are below the minimum wage and increase their rate to the newly established minimum wage. This method allows companies to advertise to the community, employees, and new recruits that they pay a minimum hourly wage of $XX.XX. This is the cheapest option for an organization that wishes to pay a higher minimum wage; however implementing this option also brings the most potential to create other issues in the organization.
If employees are increased above the new minimum age and no further adjustments are made, it will create wage compression with other employees.