Tackling Minimum Wage Hikes – Much More to Consider than Handing out Raises
As you likely know, as part of BC’s plan to bring minimum wage to over $15 by 2021, the minimum wage rate will increase every year on June 1st. This year, the second largest increase of the plan will take place, with minimum wage rising from $12.65 to $13.85 per hour.
While bringing employees to this legislated wage naturally requires planning and budgeting, there are other important aspects to consider and plan for.
From a legislation perspective, employers could simply hand out raises to those who are currently paid lower than $13.85. From a broader organizational perspective, however, it’s not (and ideally should not be) that simple. Rather, it’s important to look at your overall compensation structure in order to ensure the changes you make align with your philosophy (e.g. regarding internal equity and market rates) and avoid or minimize pay compression. Pay compression occurs when there is only a small difference in pay between employees, regardless of tenure, skills and experience. In the case of a minimum wage increase, pay compression may happen when the wages of entry level employees increase more than those at other levels of the organization.
Below are the areas to consider and steps to take:
- Review pay levels across the organization. With the substantial increase to minimum wage, this may be an important opportunity for your organization to check your pay structure against your desired place in the market (i.e. what other organizations in your region/industry pay for similar jobs)
- Determine what jobs need to be immediately brought up to minimum wage by June 1st this year and for subsequent years (i.e. don’t wait until next year to plan the next wage hike)
- Consider how your compensation grid is currently set up; e.g. do you have wage ranges and/or pay bands?
- If you have wage ranges/bands, adjust them accordingly. If you just change pay-rates (or even the range) for only the lowest paid employees, it’ll compress the other pay-rates/ranges. This doesn’t mean you have to shift all your ranges at the same percentage, however; e.g. your spread could get larger towards the higher ranges (i.e. for professionals and managers)
- If applicable, consider how your other locations will be affected by movement of wages in BC
- Consider if other changes or cutbacks may need to occur as a result of rising wage costs (e.g. hiring freezes, cuts in hours, eliminating paid breaks, benefits or perks, or increasing premium costs to employees); appreciating that some changes may be necessary, be cautious of how you implement and communicate them
- Plan your communication strategy!
One of the most important considerations, as noted above, is how you communicate changes to employees. While most employees currently paid below the new wage will of course know that their increases are legislated, it shouldn’t be positioned as a burden or in such a way that they don’t feel valued. Additionally, employees who were already making $13.85 or thereabouts (likely longer-term employees, those with more experience/skill/responsibility or who’ve performed exceptionally well) shouldn’t be left feeling burned as a result of newer or more junior co-workers now making the same or similar (and in some cases, having just received a significant increase).
If you’re not able to even the score immediately, communicate your plan for a phased approach. Ideally, your employees should understand that the legislated increases have an impact on your organization, but that you’re approaching it in a well-thought-out manner that treats ALL employees fairly. Whether you communicate this in one-on-one meetings (recommended), memos, letters, or otherwise, ensure they know how it fits with your overall compensation philosophy and structure. Finally, if you’re not planning to adjust your ranges, or otherwise minimize pay compression, be prepared to address questions of fairness.