Many organizations across all sectors are facing a dilemma with the increase of the minimum wage. On the one hand, a pay hike for the lowest-paid workers is necessary to maintain labor market competitiveness as well as keep up with state and federal minimum wage mandates. On the other, compensation structures will be interrupted, potentially causing pay compression. Here are some thoughts on this trending topic as expressed by a panel of compensation experts at the WorldatWork 2021 Total Rewards Conference, which took place in October.
Increasing the minimum wage may have the following implications:
Providing for Wage Compression
The panelists provided several practical suggestions to increase base pay while addressing wage compression for non-minimum wage positions. These include:
Other Implications to Consider
Incentives and employer contributions are typically a percentage of the base pay. Thus, raising the minimum wage will increase the cost of these payouts. Employers should start providing for the higher benefits budgets as these will impact their bottom line. Examples include:
Workers should also acknowledge the possible impact of higher basic pay on their tax bills. They may no longer qualify for certain tax credits after-tax rate changes.
You can strategize to minimize the cost of incentives after raising the minimum wage in your organization. One option is to move the variable benefits over to basic salaries.
How to Prepare for Minimum Pay Rise
Any pay-range changes will impact your compensation budget. It’s important that you anticipate and start planning for the adjustments right away. Here are some measures that can help streamline the inevitable transition:
State or federally mandated minimum wage increases are inevitable. Do you have a plan to address any potential pay compression issues and the cost implications? For additional insights on the subject, contact the experts at McKnight Associates, Inc today.
