With 2024 upon us, many New England employers were anticipating another round of increases to their states’ minimum wage requirements after a round of inflation-prompted boosts in 2023.
After its hike from $14 to $15 on June 1, for example, the minimum wage for Connecticut was raised again to $15.69 on Jan. 1, thanks to its first-ever economic indicator adjustment. Massachusetts, though, is standing pat at 2023’s increase to $15, since business groups opposed further hikes as their costs continue to rise.
The states tend to have their own patchwork of minimum wage requirements. Those that don’t – think New Hampshire – are subject to the federal Fair Labor Standards Act, and must meet its minimum of $7.25, unchanged since 2009.
Keeping on top of minimum pay requirements isn’t terribly onerous, in and of itself. But meeting them can trigger management and compliance challenges that must be carefully thought through.
For all that wage hikes can support recruitment and retention efforts, they’re accompanied by a ripple effect of issues. Internal pay structures and equity must be balanced. Record-keeping can become more complicated. Compliance requires careful reporting and documentation.
Here are some guidelines that should help HR leaders manage pay issues effectively and transparently moving forward.
- Assess the current pay structure - Or “know your numbers” When pay rates are legislatively mandated, each organization’s wage structure should be assessed to ensure minimum pay is offered to non-exempt employees and aligns with pay ranges overall. Achieving consistency in the ranges is critical to avoid internal equity disparities.
Inequities arise when employee pay bumps up against supervisor pay, or when supervisor pay bumps up against managers’. Adjustments are necessary. While labor costs may go up as a result, that risk must be balanced against morale and employee motivation. In considering structural issues, employers must also look at how adjusting minimum pay will affect exempt employees and ensure exempt and non-exempt roles are clearly defined.
It can be a real challenge for many HR departments to navigate regulatory compliance issues in the face of pending changes. Concerning California’s new minimum wage requirements in 2023, many employers didn’t have pay data tracked or the salary ranges available to post for jobs. As a result, many struggled to meet an early deadline to submit core record-keeping reports.
- Set up your compensation policy markers. It’s also important for employers to determine where they stand on compensation policy, given legislative requirements. Some may make pay adjustments based on internal job value, to maintain a distance between jobs. Others may focus more on how jobs are valued in the external market.
The challenge is in finding a balance between internal and external influences. It really comes down to the nature of the company. Also important, though, is its culture – the mission, vision and values, and the degree to which it is people centered.
- The pay transparency trend. Pay transparency can mean openness about pay practices and how pay is determined, but some companies go further in providing full transparency around salary ranges for every role. Along with minimum pay levels, many states, such as California and New York, have enacted salary transparency laws.
These are ways to add accountability and, in the process, address wage gaps. Just as importantly, more than 90% of employees say transparency over salaries would affect their trust over pay disparities, and improve morale, retention and loyalty. It speaks to the need for a consistent process for setting compensation levels, with an eye toward removing inequities tied to gender, ethnicity or race.
- The critical role of communications. It’s impossible to meet the transparency test if inadequate information is provided. That’s a key consideration for communicating with employees as well as regulators. HR should align with its legal and communications teams to ensure information conveyed is based on a consistent process and imparts accurate information about compensation levels and how they are weighed.
The reality is that pay gaps and disparities do occur, and there may be valid reasons for them. Experience, education, job performance, and length of service are legitimate reasons for pay differences. But without a solid – and transparent – rationale bolstering the wage structure and pay policies, employers may well fall behind in the battle for talent.
Contact HUB’s New England offices at [email protected] to learn more about employee assistance programs, financial education programs and additional benefits to improve worker well-being.