The political discourse focusing on the wage disparity between the rich and the poor has led to efforts to raise the minimum wage for American workers. Today, more than half the states have minimum wages above the Federal minimum wage, and effective July 1, 2015, the District of Columbia crossed the $10 per hour threshold with a $10.50 per hour general minimum wage. Several local governments elected to phase in even higher minimum wages. For example, Los Angeles County, the City of Los Angeles and the City of Seattle adopted a $15 minimum wage to be phased in by 2021.
The effort to bring higher wages to workers has not been limited to hourly employees. As reported recently in this blog and elsewhere, the United States Department of Labor solicited comments on a proposal to modify (and potentially index) the minimum salary to be paid to exempt employees under the Fair Labor Standards Act, a move which could raise the wages of tens of thousands of managers and supervisors.
Whether you support or oppose higher wages through these political initiatives, increasing the wages of workers may carry unintended consequences which manufacturers should take into account. See, for example, “A Company Copes With Backlash Against the Raise That Roared” (reported in the New York Times on July 31, 2015) and “Why Raising Employee Wages Sometimes Backfires” (by Michael Wheeler, who teaches at Harvard Business School, and is available on LinkedIn). Published reports have noted that some higher wage earners harbor feelings of resentment when recently hired employees get a “bump.” Some recipients of the higher wages question whether they have or will “earn it.” Finally, customers might question how higher wages impact them, believing that manufacturers will inevitability pass higher wages on to the public.
Many commentators recommend that “messaging matters” in this area. If so, when implementing a minimum or other wage increase, manufacturers should consider:
- The impact on employees making more than the new minimum – does the manufacturer leave those employees “as is,” raise those employees’ wages by a similar amount or adopt a “middle of the road” approach?
- The impact of higher hourly wages on working hours and overtime – does the manufacturer reduce hours to compensate for increase costs or otherwise seek to reduce that impact by controlling overtime?
- What is the overall impact of higher earnings on fringe benefit costs, withholdings, and other “hidden” costs?
- Whether higher costs should or could be passed on to the ultimate customer?
It does not appear that the pressure for higher wages will go away anytime soon. Manufacturers might be wise to consider these issues now and plan for what may be inevitable.