On January 1 of next year Ontario will see a significant salary change brought on by Bill 148, with minimum wage increasing from $11.60 to $14. By 2019 it will be raised an additional dollar to $15. This change is significant – a 30 per cent increase over 15 months whereas the last 30% increase happened over a nine-year period in six increments.
Some organizations are not greatly impacted by this upcoming change because much of the workforce already earns well above minimum wage. But for organizations with large minimum wage populations, the impending change is serious with many wondering ‘what should we do?’ Making sure that all employees are brought up to the new minimum wage is one matter, but what about employees who already earn $15 or more?
”Do we need to raise salaries for people currently at $15?”
“What about for those at $16, $17, or $18? Should those salaries also go up?”
“And how high up should these other increases go?“
There likely is a point at which the minimum wage increase wont impact salaries. For example, organizations probably aren’t considering raising executive salaries because minimum wage is going up – but for the other employees what is the tipping point?
There is no one right answer when determining which salaries should be impacted by the minimum wage changes, but there are several things which organizations can consider in making their decision.
Employers should consider their compensation philosophy or strategy if one exists. This may provide guidance on how the organization wants to pay jobs at or near minimum wage. There could be philosophical statements on how the organization wants to pay relative to competitors or minimum standards. Does your philosophy speak to pay for performance or to monitoring the market? If well written, the compensation philosophy and strategy is meant to be a guidepost when making compensation design decisions.
While these recent changes to minimum wage are the most significant we’ve seen in some time, minimum wage increases have happened before. Consider what the organization has done in prior situations. Is there a pattern or an approach that can provide direction on how to manage this change? Past precedent doesn’t necessarily need to dictate what happens this time, but it could provide some guidance on things to consider.
Analysis should be done to determine where there might be compression issues after employees are brought up to minimum wage. If no other salaries are adjusted, will there be managers and subordinates making the same amount? If your organization has salary ranges, would adjusting only the lowest ranges cause too much overlap between them? What is the impact to midpoint progression in your ranges – the differential from one midpoint to another? Ideally, you’ll want to minimize compression in order to maintain internal equity.
Perhaps the biggest consideration when deciding the impact of minimum wage increases will be cost. The organization will likely need to test different scenarios to determine what is affordable and reasonable. To do this, you may try testing the costs associated with increasing all employees within $5 of minimum wage – some organizations may choose to start at a higher value. Determine the cost if all employees within $5 were to receive an increase equal or similar to the minimum wage increase. Is that cost affordable to your organization? If no, test a lower scenario.
The four considerations above will help your organization determine how to deal with minimum wage increases. Some organizations may choose to use a ‘wait and see’ approach to determine how the market responds to the changes. Ultimately, any decisions need to make sense for your organization, both for short-term engagement and long-term sustainability.
For more information about how to make a successful transition at your organization, contact Accompass Vice President, Anne Peiris.