Will recent pay increases for minimum wage workers affect those in higher earning brackets?

Around the nation, large corporations are taking the minimum wage issue to heart by instituting salary increases for their most underpaid workers.


Companies like McDonald’s, Wal-Mart, Target, and TJX, the parent company of TJ Maxx and Marshalls, have announced plans to raise wages by as much as $1 or more per hour, with more raises coming for the beginning of 2016. This is good news for the millions of entry-level and minimum wage workers who typically earn just above the poverty line in many U.S. states.


Are people for or against an increase in the federal minimum wage?


Based on PayScale data, users are split equally when it comes to raising minimum wage:


49.4 percent are for a raise in the federal minimum wage.

50.6 percent are against a raise in the minimum wage.

If the minimum wage is being increased, why aren’t more companies looking at wages for the rest of their workforce who have not seen raises in the last few years since the recession? How could this trend affect salary increases across the board?


Talking about the minimum wage debate


I sat down with PayScale’s Director of Professional Services, Mykkah Herner, to talk about this issue. Raising minimum wages goes a lot deeper than just managing entry-level employee wages. Mykkah sees several challenges of managing minimum wage increases, including the “Four Cs” of compensation.


Complexity – Timelines for business compliance vary widely, even in states that have already approved minimum wages increases. Some businesses are in cities like Seattle and San Francisco where the city-wide minimum wage supersedes the states and do not meet the requirements of the increases. Add to this the Affordable Care Act requirements, and managing the minimum wage in the proposed tier increases becomes a lot more difficult.


Compression – Simply raising wages of entry-level employees isn’t going to be enough. Employers must also look at mid- to high-level jobs to see how those wages need to move. In the past, a 2 to 5 percent increase in wages seemed fair, but what happens when a company must start paying its workers who previously earned $9 an hour $15 per hour? How is this fair to the employees who’ve worked at the company for years at the lower rate? Such employees could see this as a threat to their value in the company – the “isn’t MY job important”? scenario.


Budgets – How will businesses compete for the best talent in states that don’t have to comply yet or where the minimum wage has not increased, as compared to more aggressive regions where employers are forced to pay more? Mykkah says that “It’s a matter of getting creative with pay grade structures to accommodate both the need to pay fairly and legally as well as to differentiate jobs that are now getting paid more and more similarly.” If an employer hopes to maintain a top workforce, the focus needs to be on compensating top performers, not minimum wagers.


Communication – This is a tough one. Employees who have been typically paid lower rates (and not ALL people who earn minimum wage fit a certain demographic) are apt to be happy about this change, but others who haven’t seen a real raise in years are going to react negatively. Mykkah recommends “organizations focus on aligning the right employees with the right jobs” and to “Think about the impact on all jobs not just minimum wage jobs and compliance. What are your priorities and what people and what jobs matter the most to your organizational success?”


Best practices for dealing with minimum wage increases


Here are three last pointers as you work through minimum wage increases at your organization:


  • Learn the laws. The most important thing to do as an employer is to stay up to date on the law as the minimum wage increases roll out.
  • Focus on pay equity. The purpose of raising the minimum wage is to reduce poverty and help people thrive in a restored economy. Even if your business is not directly affected, you can take steps now to increase pay equity among your workers.
  • Look at the positives. While the increase in pay for certain entry-level jobs will increase, others may not experience such a dramatic change. And while the changes are bound to contribute to labor shifts, try to look at this as “good turnover” because your organization will reduce dead weight, enabling it to hire new and better people.

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