American employers with operations in various States may need to comply with minimum wage increases again on 1/1/12.
Eight states (Arizona, Colorado, Florida, Montana, Ohio, Oregon, Vermont and Washington) boost their minimum wage on January one. Although the United States federal minimum wage still stands at $7.25 an hour, individual cities and states are free to impose rules for higher pay.
San Francisco will be the first city to require a minimum wage over $10 via a formula that will generate a 3.2% increase to $10.24 an hour on 1/1/2012. Santa Fe also has had a high minimum wage of $9.85 an hour specific to the city since 2009.
The various State rules are so complex and arcane that lists tend to fall out of date quite rapidly. Internet searches made at different times reveal articles with different states cited. For example, some articles skip Colorado; others suggest that Connecticut will increase sometime in 2012; one article from Oregon leaves Connecticut completely out of their list.
It will not be surprising if a new internet search will discover even more differences in various lists by the time this article is published. States like Illinois, with statuatory minimums that exceed the current federal $7.25, could pass new laws at any time. As the fellow* said, "No man’s life, liberty, or property are safe while the Legislature is in session.”
About 5% of employed Americans earn the minimum wage. It is generally considered the lowest figure payable to the least-qualified and most inexperienced workers with no particularly useful skills.
When a political body mandates an increase to the minimum amount you are permitted to pay to your least valuable employee, they have created an artificial floor for wages that generally exceeds the market-clearing level that would otherwise apply. After all, employers quickly learn what hourly rate is required to attract and engage competent workers in specific locations. Offer too little and no one applies; offer too much and you are overwhelmed by “overqualified” candidates whose credentials greatly exceed your actual needs. The free and open marketplace (to the extent that it truly exists) will swiftly assist the employer to sort out the proper number. When a government intervenes, however, to impose an arbitrary universal rate as the mandated minimum, it increases employment costs at the lowest level in that jurisdiction. Bumps to minimum wages also have a ripple effect on jobs and positions paid close to the old minimum, although such effects should diminish and virtually disappear at higher income levels.
It has been some years since the US federal minimum changed last, so many compensation analysts may not be familiar with the various options for legal compliance steps that are both cost-effective and motivationally sound. An ancient article on the mechanics of Increasing Minimum Wages Without Maximum Cost is still available. The warnings and suggested solutions are still relevant. For example:
- Practices based on the old obsolete minimum rate must be reviewed.
- Flat general structure increases are a bad idea.
- Min-wage changes do not compel changes to range midpoints or maximums.
- Across-the-board salary adjustments are unwise.
- Pay compression relationships at the lowest levels should be reconsidered.
In particular, internal equity relationships that have become so ingrained and habitual that they are seen as automatic perpetual entitlements should be reexamined in the light of current circumstances.
Be sure to periodically check the appropriateness of all your pay practices. Since organizations are human enterprises, it should come as no surprise that what fits at one time may not fit so well when the times change, and State minimum wages changes can be particularly troublesome.
*The quote is generally attributed to either Mark Twain or NY judge Gideon J. Tucker. As a native Missourian, I’ll go with Mark Twain.
E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.) and will express his opinion on almost anything.
Creative Commons photo: Keeping Your Eye on the Money by Darin House