As early as 2017, a $15 hourly minimum wage could become the norm for a much larger portion of the country. USA Today reports that five states and nine cities have begun taking meaningful steps toward raising wage floors, joining Seattle, Los Angeles and "more than a dozen other" areas with phased-in wage plans. While the federal minimum wage remains at $7.25, 60 percent of the U.S. workforce is employed in areas with higher wage minimums.
But even labor economics experts admit they "don't know" whether drastic hikes in minimum wages could have a significant impact on cost of living and unemployment rates, according to Bloomberg. However, the popularity of wage increase propositions means that CHROs and HR leaders should begin thinking about how those increases could affect their internal processes and, in order to remain compliant with local, state and federal law if propositions pass in your area, consider regulatory outcomes.
1. Be Ready for Widespread Wage Impact
Organizations should prepare to observe regional pay scale increases in response to both legislative and economic conditions. Although it's unlikely senior-level salaries could be impacted, HR teams may discover it's necessary to increase the salaries of mid-level roles to remain competitive.
HR leadership should understand that without wage increases in mid-level roles as well, they could face potential difficulty in recruitment and retention. However, to balance increased costs of total compensation, wage increases don't necessarily need to be a company-wide initiative.
2. Calculate the Risk of Phase-In Legislation
Seattle, Los Angeles and San Francisco are three examples of cities with phase-in plans for raising wage minimums to $15 per hour, though phase-in policies vary significantly, and in some cases, won't fully take effect until 2021. In many cases, the size of an employer is a key factor in determining when the higher wage minimum is required.
However, as the American Enterprise Institute reports, there is a potential for significant impact on small and midsized employers who choose to wait until the last possible minute to raise wages. To avoid negative impacts on morale or employee retention, employers could consider proactively raising wages ahead of the legislative schedule if their phase-in date is relatively late.
3. Prepare to Recalculate Pay Ranges for Exempt Employees
Regional requirements will vary, but HR teams may need to recalculate the wages of their lowest-earning exempt employees to remain compliant. According to the Society for Human Resources Management (SHRM), California's minimum salaries for employees who don't "qualify for overtime and certain break regulations" are twice the state minimum earnings.
So although regional regulations will vary, HR teams should begin familiarizing themselves with laws dictating how exempt employees are compensated, in preparation for possible recalculations of pay scales.
4. Be Conscious of Regional Variations
For national organizations with multiple geographic locations, variation in minimum wages may already be a reality. SHRM recommends that all employers begin considering regional variation as a key factor in wage calculations. "National parity" for the position description of entry-level positions may matter less than regional "cost-of-living calculations and market conditions." Nationwide wage hikes may not be necessary if only certain regions are affected by a higher minimum wage, which is why HR leaders should consider total compensation on a geographic basis.
For many geographic locations in the U.S., a $15 per hour minimum wage is a virtual certainty by 2021 or sooner, and for many other regions, it's a strong possibility. In order to ensure your business is able to remain competitive in the war for talent and retain workers for entry- and mid-level positions, HR leadership must balance possible new compliance requirements with both current and emerging risk factors.