How to Navigate the Minimum Wage Debate in Employee Relations

The current U.S. federal minimum wage is $7.25 an hour, and this rate has not changed since 2009, when it was raised by 70 cents from the prior minimum wage of $6.55 per hour. Many believe that an increase in the minimum wage is long overdue, while others fear that raising the minimum wage would lead to increased inflation and unemployment due to increased labor costs. Let’s explore how to navigate the minimum wage debate when dealing with employee relations in your organization.

State vs. Federal Minimum Wage

When people talk about the minimum wage, they generally mean the federal wage of $7.25, but wage and hour laws allow states to set a higher minimum wage if they choose. Many states that have higher costs of living, such as California, already have minimum wages that exceed the federal wage, and employers must pay the higher rate. Washington, D.C., has the highest minimum wage at $16.10 per hour.

States cannot set a minimum wage below the federal minimum wage. Some economists debate against an increase in the minimum wage by arguing that states can set their own minimum wages and that businesses will be driven by market forces to raise their wage offerings. The pros and cons of raising the minimum wage range from greater labor stability and reduced turnover to soaring inflation, increased labor costs, and inflated operating expenses.

The Benefits of Raising the Minimum Wage

The arguments for raising the minimum wage are many, including:

• Helping families rise out of poverty
• Increasing consumer spending as people who have more tend to spend more
• Increasing tax revenue for the government
• Improving employee retention and employee satisfaction

The last is perhaps the most convincing to employers, as replacing employees can cost even double the prior salary. This means companies with high turnover suffer incredibly high overhead just to keep bringing in new workers.

The Drawbacks of Raising the Minimum Wage

The drawbacks of raising the minimum wage, however, include:

• Increased labor costs
• The potential to spike unemployment is when employers cannot afford to continue paying all of their employees higher wages.
• The risk of inflation when more money enters the economy and the cost of living rises to match it. 

Inflation can raise the baseline for poverty, which threatens to negate one of the key benefits of an increase. Finally, when employers have to pay more, they look for more experienced and skilled workers, which reduces entry-level opportunities. In some cases, employers may turn to freelancers and contractors, looking to the gig economy to make up for the increased costs and overhead of full-time workers.

The Minimum Wage Debate and Employee Relations

Wage and hour laws continue to be a major issue for employers, particularly in light of the ongoing debate about the minimum wage. As an employer, you need to ensure that you pay your employees fairly and in compliance with all applicable wage and hour laws. Some states have already passed legislation to increase the minimum wage, and proposals are regularly introduced at the federal level to raise the minimum wage to $15 per hour, but as yet none have passed.

Any minimum wage hike, whether at the federal, state, or company level, will affect your HR department in major ways. For one, it will begin to close the gap between lower-level, mid-level and top employees in the company.

In some cities and states, phase-in legislation has been put into play to allow employers to gradually adapt. If this occurs in your city, it is essential that you plan for the risks and calculate expenses accordingly. Such legislation will have the greatest impact on small- to mid-sized employers. Do not wait until the last minute to raise wages; it could end up being disastrous for your company's finances.

Also be aware that even within states, cities may also raise the minimum wage to higher than the state level. If a neighboring city or region has a much higher minimum wage, you may be forced to raise your company wages to compete. Finally, if you have salary-exempt employees, you should consider raising their wages to match any raise for hourly employees as a form of risk management against high turnover for skilled workers.

All-In-One Labor Relations Solutions

The minimum wage debate is just one way in which labor relations have become more complex. From remaining in compliance with local, state, and federal laws to managing risk in your company, you need a capable labor relations system that can adapt to the lightning-fast changes in the modern labor landscape. 

LaborSoft specializes in HR case management, employee relations, and labor relations. Get in touch with us today to find out about the customizable modules we can offer to cover all of your employee and labor relations needs.