With the new Biden Administration, there is a renewed effort to increase the Federal minimum wage from $7.25 per hour to $15.00 per hour for all non-exempt hourly employees. Depending on what state your organization operates in, the state minimum may be lower or higher than the Federal minimum. In Georgia and Wyoming, employers can pay their employees $5.15 per hour unless the employers are subject to the Fair Labor Standards Act, then the employers must pay $7.25 per hour. There are currently 19 states using the Federal minimum of $7.25 as their state minimum wage per hour. That leaves 29 states (58%) that are paying their employees a minimum wage above the Federal minimum. Fifteen states are paying $11.00 per hour or higher and fourteen states are paying between $8.00 and $10.50 per hour. Washington, D.C. is paying $15.00 per hour as the highest non-state district followed by the State of Washington at $13.69 per hour. However, CA has a law for businesses with 26 or more employees where they must pay their employees starting at $14.00 per hour.
Many companies are moving towards the proposed $15 per hour figure to attract, grow and retain their employee base. However, they are seeking to accomplish these higher wage figure minimums over a period of years vs. over night. Many states have also passed phased in multi-year adjustments over a three to five year period of time. We agree with these approaches as they are good for business and the economy and hope our country and the other states can also head in this direction.
Jenny Yang was appointed as the new Director for the Office of Federal Contract Compliance Programs on January 20, 2021 by President Biden’s administration. Since this appointment does not require Senate confirmation, it went into effect immediately. This move will require federal contractors to increase pay equity awareness and enforcement based on Director Yang’s Equal Employment Opportunity Commission (EEOC) experience with the Obama administration from 2013 to 2018.
During her EEOC tenure, Ms. Yang was a strong proponent for pay equity and closing the gender wage gap, as she directed the Obama administration’s effort to collect pay data from federal contractors and other employers through Component 2 of the EEO-1 form. Although the Trump-era OFCCP passed on its intention to review Component 2 data, the Biden OFCCP under Director Yang can be expected to analyze this data in search of potential gender-based, or other, pay disparities.
Job valuing processes based on proven compensable factors will rebound to validate job comparable worth. Pay and job worth inequities for gender, race and other protected groups recognized by the federal government will be revealed by EEO-1 Component 2 data submitted to the EEOC.
Employers need to conduct on-going job valuing assessments and employee pay analysis studies in preparation for forthcoming Biden administration OFCCP and EEOC pay equity compliance audits and lawsuits.
If you are reading this, 2020 is over and we are into the first week of 2021. As we reflect on 2020, we believe that most everybody is glad the year is over and ready to see how 2021 shapes up. Though 2020 has been a crazy year, we have appreciated the opportunity to assist our existing clients and new clients during the past 12 months with meeting various HR/Compensation needs.
Our oldest company, Johanson Consulting, Inc. was established in 1973 by our dad, Dr. Richard C. Johanson, who was a twenty year corporate HR Vice President and a twenty year Management Professor in the Sam M. Walton College of Business, University of Arkansas before he retired in 1989. Blair and I joined the company in 1999 and 1986 respectively. We are blessed with clients dating back to 1985 that we are still serving today as well as clients from our other company, DB Squared, LLC (licensed online HR software) which was established in 2005.
Blair and I, Denise Wagner and Chris Devine are looking forward to 2021 and want to thank our current clients for putting their trust in us since 1973. We are also excited to add new clients this year so check off one of your To Do list items by contacting us with your HR/Compensation needs.
Based on annual pay increase studies released by WorldatWork, Willis Towers Watson and Salary.com earlier this year, the average salary increase budgets will range between 2.8% and 3.0%. Stephen Miller, CEBS published and released a SHRM article on September 3, 2020 titled, “Salary Increase Budgets Decline for First Time in 12 Years.”
The Willis Towers Watson survey indicated that approximately three quarters of the companies plan to distribute performance bonuses in 2021. This survey projects bonuses to average 11% of salary for exempt employees and 6.8% to 5.6% for non-exempt employees.
We saw a softening of employee pay adjustments (COLA, General, and Merit) during this year due to the pandemic for our client organizations and businesses. We believe that our public (non-profit) clients will budget between 2% and 3% for 2021 pay increases and our private for-profit clients are planning for closer to 3%.
We have been pleased to see the resiliency of our clients during this very challenging year and we look forward to helping them navigate compensation planning in 2021 and beyond.
Blair and I have noticed that some of our clients are not adjusting their salary ranges and this is creating some internal problems which could be avoided. When organizations don’t adjust their salary ranges or salary steps, then department managers start getting creative with modifying job descriptions and job values with the desire to obtain an increase in base salaries for their department positions. Once this starts to happen, then everyone gets on the bandwagon to do the same thing. By adjusting your salary ranges every one to two years, you keep your salary ranges or salary steps close to market as well as you avoid the need to mess with changing job descriptions and job values for the sake of increasing base salaries. Let’s keep the salary ranges near market whether you have the budget or not to adjust employees’ base salaries.
Recently, we had a discussion with a potential client via a GoToMeeting online session. We were visiting with three members of the human resources team about internal job valuing and job matching with a national external salary aggregator’s software system and market pay comparisons database. One of the human resources team members mentioned how internal job matching had become a burden with the national external salary aggregator’s market pay comparisons database system. For this human resources profession, it had become unmanageable to match unique jobs with the external market pay comparisons database system. Even though the external national market pay comparisons database had thousands of job title benchmarks, the human resources manager was spending too much time on matching her company jobs with the national database jobs.
It is our recommendation that human resources and compensation professionals utilize an objective and defensible internal job valuing, matching, slotting or ranking process/system prior to the use of a national external salary aggregator’s software system and market pay comparisons database. The internal job review and placement process/system provides the basis for job equity and pay structure placement analysis that can be validated with external market pay comparisons. We believe that the combination of an internal job analysis and an external job matching process/system offers two forms of review analysis and promotes a more accurate and fair job assessment and position pay placement for organizations that offer transparent, equitable and competitive compensation pay plans.
A few weeks ago Stephen Miller, CEBS, wrote an excellent SHRM article on projected health plan costs for 2021. Mr. Miller referenced a new survey conducted a few months ago by the nonprofit Business Group on Health (BGH). The survey garnered 122 large employers offering coverage to more than 9.2 million employees and dependents. Over two-thirds of the responding companies each have more than 10,000 employees.
The projected increase in health benefit costs is expected to increase by 5.3 percent for next year. This equates to a projected per employee cost of over $15,500 which includes premiums and employees’ out-of-pocket costs. The survey indicated that large employers paid 70 percent of these costs and the employees cover the remaining 30 percent. Thus, the large employers will be covering around $10,850 and the employees $4,650.
Given the significant health care cost outlay that large employers are providing, the survey also listed several priorities for 2021 to mitigate next year’s increase as well as overall health plan costs. The items below would be good for all employers to focus on in 2021.
- Offer more types of virtual care/telehealth services
- Expand access to mental health services
- Focus strategy on moderating high-cost claims
- Offer care through centers of excellence for additional conditions
- Adopt networks of high-performance health care providers
- Link health care with workforce strategy
- Focus on primary care
- Address high-cost drug therapies
We recently completed a classification and compensation study for a public organization where the last formal study was done over 20 years ago. With this much time between formal classification and compensation studies, the normal outlook would be that the organization’s classifications and compensation plans would be dated and needing a complete overhaul. We were pleased to find that the Human Resources Director and HR Administrator had worked diligently to keep the organization’s job classifications current with ongoing internal reviews and updates. In addition, the organization’s compensation plans were evaluated and updated with semi-annual external market pay studies.
We were able to affirm and align the organization’s classifications and compensation plans based on our internal and external assessments and address dated policies and slightly inconsistent grade and range structures. This organization did not suffer a classification and compensation plans earthquake or sticker shock from the new study because of the ongoing internal and external work performed by the Human Resources Director and HR Administrator. There are several benefits derived from maintaining a current classification and compensation plan. Some of those benefits are listed below.
- Ongoing alignment of job classifications and compensation pay grade placements
- Internal job and pay equity and external pay competitiveness
- Consistency with compensation planning and budgeting per fiscal year
- Earthquake and sticker shock prevention from new classification and compensation findings
- Linear classification and compensation plans and less pocketed or over-utilized pay grades
- Greater transparency and consistency with job assignment and pay expectations
- Ability to hire and retain competent and skilled talent for the organization
Over the past few years, we have seen several of our clients considering and/or implementing a living wage policy and structure. The “living wage” concept dates back to when the American Federation of Labor (AFL) was established in 1886. The organization pushed for paying all workers (union and non-union) at a level which would maintain an active family with an “American standard of living higher than the 19th century European urban working class.” (Quote from the University of Maryland University Libraries article on Living Wage)
A valuable resource that we have used with our clients that desired a living wage for its employees is the Living Wage Calculator which was first created in 2004 by Dr. Amy K. Glasmeier and the Massachusetts of Institute Technology (MIT). Her model is explained in the next paragraph which was taken from the Living Wage Calculator website.
The living wage model is an alternative measure of basic needs. It is a market-based approach that draws upon geographically specific expenditure data related to a family’s likely minimum food, childcare, health insurance, housing, transportation, and other basic necessities (e.g. clothing, personal care items, etc.) costs. The living wage draws on these cost elements and the rough effects of income and payroll taxes to determine the minimum employment earnings necessary to meet a family’s basic needs while also maintaining self-sufficiency.
There are 12 family compositions in the calculator from One Adult with No Children to Two Adults with Three Children and Both Adults working. The program allows you to select a state and county in the state to see the living wage, poverty wage and minimum wage for all 12 family compositions.
There are many groups around the country that are promoting higher minimum wages that align with the current living wage figures. One such organization is the Fight for $15 which was started in 2012.
We believe that it is important for organizations to set a plan in place to ensure its employees are making at least a living wage if they don’t have one in place already.