$15 per hour – the new reality
Posted on Jun 4, 2019 on Musings from an HR Atty by
Connecticut is the latest state to implement a plan to raise minimum wage to $15 per hour. This is a wave that will not be turned back. Currently at least 29 states and US Territories set their minimum wage above the $7.25 federal minimum wage. Of these, eight have a set progression that will raise their minimum to over $15 in the coming years. Other states have escalation without a commitment to reach $15 on a given schedule. A number of cities and counties have followed suit and more states are likely to follow. So what’s an employer to do?
The reality is “Get used to it!” More importantly, plan for it. If your business model requires low labor costs, you need to revise your model. Yes, we realize this is much easier said than done. But beginning to plan for that reality is far superior to waiting until your business model fails. You could relocate, but that is rarely a practical answer for many reasons. Not to mention, there could be an increase in the federal minimum wage, at which point the whole country will be covered by the new rate.
Other compliance strategies are also key; most involve ensuring alternative pay structures comply with the new rates. For example, if you pay a piece rate, you must revise it to ensure the average hourly rate meets the increased minimum. Similarly, if you have salaried non-exempt employees, the salary may have to be raised (again, this applies each time the minimum increases). Finally, address compression – when your salaried exempt employees are no longer making that much more than your hourly paid employees. While this is not a legal issue, it has huge practical implications. If not addressed, you may not be able to fill those exempt jobs as the employees see little reason to accept the added burden since the pay premium has been reduced. Such is our new reality.