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Are You Planning on Giving Minimum Wage Workers a Pay Raise?

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Despite recent reports showcasing organizations that are increasing employees’ pay above the minimum wage, new research from Aon Hewitt, the global talent, retirement, and health solutions business of Aon plc, reveals that 72% of organizations with minimum wage employees currently do not have a plan to pay those employees above the mandated rate.

Additionally, of those organizations, 59% reported they will not address any changes until minimum wage increases become law. In the interim, they plan to adjust wages as needed through current salary review cycles.

Aon Hewitt’s survey examined responses from 135 major U.S. organizations that employ labor at minimum wage and was developed to better understand how employers are likely to address the impact of a government-mandated increase to minimum wage rates.

“The majority of employers are taking a ‘wait-and-see’ approach, and do not plan to make any changes until new regulations are issued and they assess the actions of their competitors,” said Ken Abosch, broad-based compensation practice leader at Aon Hewitt. “Organizations are very sensitive about increasing one of their largest fixed costs and overall expense categories, and many of them simply don’t see any advantage to increasing their labor costs at this time.”

The remaining 28% of organizations that are taking actions before the required regulations become mandated expect that doing so will position them to have a competitive advantage in attracting new workers (77%) and in lowering turnover or increasing retention (76%).

Want to keep up with the latest FLSA regulations, but don’t know where to start? Check out BLR’s guide, Wage & Hour

Impact on Employees and Consumers

Whether organizations decide to voluntarily increase the minimum wage or wait for the government to put forth and pass a law, according to Aon, if the minimum wage increases, the way compensation is administered will be impacted across the organization.
Surprisingly, 49% of organizations reported they will adjust only those currently at minimum wage. Just 33% of employers say they would adjust those currently at minimum wage as well as the positions above to continue to appropriately differentiate between levels and minimize compression.
“Regardless of their approach, it is clear organizations will be faced with the challenge of having to counterbalance for the additional fixed costs that increasing wages will incur,” said Abosch. “What organizations will choose to do will vary, but employees and consumers will likely feel the greatest impact. Nearly half (47%) of the actions organizations are actively considering to offset increased costs may actually undermine the value that an increased minimum wage was supposed to deliver to low income workers.”
When asked how organizations are dealing with the cost impact resulting from increases in minimum wage, most responses revealed that organizations will push the burden down to employees by reducing or eliminating overtime (36%) or increasing prices (30%) for consumers.

What employers are doing What employers are not doing
Increasing prices of goods or services (30%) Shutting down or relocating operations (99%)
Lowering headcount (12%) Decreasing bonus targets or funding (96%)
Using automation to replace work (14%) Decreasing paid time off (99%)
Hiring more part-time employees (19%) Decreasing 401(k) contributions/matches (99%)
Redefining work (23%) Outsourcing activities/jobs (98%)
Reducing overtime worked (36%)
by Stephen Bruce, PhD, PHR