How to Prepare Your Organization for Minimum Wage Increases

You’ve likely heard the debate around raising the federal minimum wage to $15 an hour. Based on the proposed Raise the Wage Act of 2021, the Congressional Budget Office estimates this would directly affect 17 million workers whose wages would otherwise be below $15 an hour. It would also impact many of the 10 million workers whose wages would otherwise be slightly above the wage rate (in an average week in 2025, when the new wage would take effect).

Whether your employees are paid around the current or proposed future minimum wage, this issue will likely impact you. You can prepare for an increasing minimum wage by following these three steps.

Creating your salary structure

A solid salary structure with pay ranges allows you to understand and react to any adjustments at the entry level ranges. Without this roadmap, it’s challenging to see the big picture of how increases at the entry level impact your entire organization.

Reviewing and adjusting your salary structure to reduce pay compression

Pay compression is when employees who are in higher-level positions (or are experienced/tenured) make the same or less than new hires. This happens when starting salaries for new employees are set too close to the wages of your existing workers. So, once you have your salary structure, it’s important to also increase the ranges above the entry level range so your pay ranges aren’t compressed.

For example, your current starting rate for a team lead position is $15.50/hour, and your entry level new hires start at $14.00/hour. If the minimum wage increases to $15.00/hour, your new hires will only be making $0.50 less than your team leads.

Compression can quickly have a dramatic negative effect on morale and employee engagement, particularly among tenured employees who may perceive they are valued less than new hires.

Planning for the budgetary impact

When addressing both the entry level increase and other pay ranges to reduce pay compression, there can be a large impact on your budget. In addition to budgeting for the actual pay increases, look at your operations and other opportunities to gain efficiencies through technology or other resources to reduce the overall spend.

While an increase in the federal minimum wage can be a challenge, with the proper planning, insight and support, you can navigate the change to have a successful compensation strategy that attracts and retains your talented employees.

If you have any questions about how a minimum wage increase could impact you and how to address it, please don’t hesitate to reach out to me directly or on LinkedIn. I’d love to help! You can also drop us a line here or tweet at us.

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