Since 2009, the federal minimum wage has remained flat at $7.25 an hour. But individual states have taken notice and taken action — which is causing employers nationwide to take notice and take action themselves.
To underline the issue, more than half of U.S. states will boost their minimum wage in 2023 to keep up with inflation. Minimum wage for those states averages $12.58 per hour and comprises the minimum wage for employers subject to the Fair Labor Standards Act.
Unforeseen consequences and deadlines
Pay increases aren’t altogether a bad thing, as employers can use higher base pay to support recruitment and retention. But a ripple effect of issues comes with it, from balancing internal equity and pay structures to record-keeping and reporting for compliance purposes.
Unfortunately, we’re seeing some organizations struggle in preparing to meet regulatory compliance standards due to laws requiring greater pay transparency. For example, there are organizations in California that don’t have their pay data tracked or the salary ranges available to post for jobs — with a May 10 deadline for 2023 to submit core record-keeping reports.
Best practices for handling rising minimum pay and transparency laws
Meeting these challenges isn’t going to be easy, no matter where you’re located. Here are several best practices for handling rising minimum wages and pay transparency laws:
- Evaluate the current pay structure. When mandated by law, employers need to ensure the minimum pay is enforced but also aligns with overall internal pay ranges.
When lower-level employee compensation approaches that of their supervisors, organizations need to make adjustments. Doing so may increase labor costs, but not making adjustments will affect morale and employee motivation. It’s also important to consider how adjusting minimum pay will affect exempt employees.
- Establish strategic markers. Employers may make pay adjustments based on internal job value, to maintain a distance between jobs, while others may focus more on how jobs are valued in the external market. Either way, they’ll need to determine overall strategy on compensation.
- Consider increased pay transparency. Pay transparency generally means openness about pay practices. Some organizations provide full transparency, making salary ranges available for current and prospective employees. Along with an increased minimum wage, several states, including California and New York, have enacted salary transparency laws.
Improving pay transparency can help address wage gaps and can increase trust: More than nine out of 10 employees say if their organization is transparent in its pay decision-making process, they have greater trust that their employer doesn’t have pay disparities due to gender, ethnicity or race.1
- Always be communicating. It’s impossible to develop trust and loyalty when wage gaps and transparency issues are not addressed. Likewise, it’s important for an organization’s HR leadership to tell employees about pay levels and the process in determining them, and communicate a consistent message over time.
HUB International’s team of compensation and benefits experts work on a diverse range of HR needs, from risk management and regulatory compliance to benefits strategy, program design, and workplace culture.
1 iHire, “Is Salary Transparency a Good Thing?” December 13, 2022.