By Douglas G. Baber, SHRM-CP, MBA, DBA(c)
On November 3, 2020, the Florida voters have spoken, and Amendment 2 was passed. This initiative passed with 60.8% of the vote, just over the 60% minimum required for approval. Effective, September 30, 2021, the new Florida minimum hourly rate will be $10 an hour or $6.98 plus tips for tipped employees and set to increase $1 an hour each of the following years to $15 an hour in September 2026. This change will put the Sunshine State on a short list of states that have enacted a $15 per hour minimum wage. Other states that have approved the same minimum include California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey and New York.
There has been plenty of discussion about how this will affect the private sector, but what about the public sector, especially our rural cities and counties? This article will focus on the questions you need to be asking to prepare your governmental agency for the coming effects on your projected payroll and possible wage compression.
Some organizations may not need to worry about this impending change as the market that they live in is already at a level where you are paying your entry level positions at or above this wage now to remain competitive in the market. The problem arises when in the smaller organizations that pay a competitive wage of $9 to $10 an hour now and are not able to increase services at the current wage due to budgetary constraints. Once they go to $10 an hour in September of 2021, they will be forced to look at the compression issues related to moving just those low paid employees up to the new minimum.
The first year two years will probably not hit as hard as the following three years. These years will be where the real compression starts for most. Listed below are a few items to consider as you start looking at which positions that are compressed due to the rising minimum wage and the residual effects of that move:
- What are some of the challenges associated with wage compression?
- Compression can hinder recruitment of top talent or the best qualified candidates as they generally command a higher starting wage.
- Low-level managers or supervisors in highly skilled positions will be compressed when line level employee salaries begin rising to nearly the same levels.
- What about pay considerations for employees with seniority?
- If this goes unattended, it could trigger possible turnover of long-time employees making less than or equal to new hires in a similar positions.
- These employees with seniority take with them many years of intuitional knowledge. What have you been doing to harvest that institutional knowledge prior to their departure? Many things are triggered when this exodus begins.
- Do you need to make pay grade or pay band adjustments?
- Finding a balance between pay scale adjustments and minimum starting salaries is going to get tougher.
- Your employees that have been on the job for many years are not going to like being at the bottom of the pay range or anywhere south of the midpoint. Even if you bump them up and slide the pay sales they will still be near the bottom and will ultimately be training the new hire that comes on board making the same as them with little to no experience.
Ultimately, pay compression can lead to turnover if employees feel they’re being undervalued. This is more apt to happen if long-time employees discover that they’re receiving little more money than new hires. The situation can be especially troublesome when your best, most tenured employees decide to jump ship. Even if they’re not actively looking for a new job, employees can lose motivation resulting in lost productivity.
Here is a closer look at the percentage increases through 2026. Start doing the math and think about your low-skilled and semi-skilled employees and the overall effects of them making $15 upon hire in the year 2026. If you do not increase your skilled workers, they will be making the same wage and we all know that won’t help as the unemployment rate drops and people that have been sitting on unemployment begin to re-enter the workforce. Just imagine if you increased your entire organizations wages by over 58%…detrimental to most, not possible for others, but it’s the law. Take a look at this progression as it relates to the percentages of increase:
Ultimately, $15 per hour equals inflation. Everything is going to go up for you and your employees. Yes, this means the employees are funneling more money into the economy, but they also have to pay more for goods and services too. The prime example of a future hardship is projected to be daycare, the cost of daycare could increase by over 20% throughout the state. If any of you, like myself, currently have to pay for daycare, imagine the already high rate in Florida going up by that amount, without getting paid more.
Currently, with Florida’s unemployment rate at 5.1% (May 21, 2021) and the removal of the additional funds for unemployment in June, you already see “Now Hiring” signs for workers at Domino’s and McDonald’s, for example, offering $15 an hour. They are even offering signing and attendance bonuses. Good luck keeping up with that in local government. Ultimately, certain jobs are going to be getting bid out to private providers that have traditionally been performed by fulltime government staff. Government agencies must get smarter with their resources. In the past, during an economic downturn we did more with less. Now that the market is back up, for now, most government agencies are still operating at the same staffing levels that we were at when the recession hit in 2010.
In May of 2021, Governor DeSantis stated that 900 people are moving to Florida every day. I am certain this is true, and like many of you, I think they are moving to my town. Never before have I seen so many lots being cleared for new construction homes. This means that there is going to more government services needed to be offered sooner than anyone expected. Growth is good but sometimes, too much growth is unsustainable. In one case its job security, but on the other hand it is a little overwhelming. Then on top of that the increase in the bottom of the pay scale by a dollar a year until September of 2026. Then it clearly states that salaries are to be adjusted annually thereafter for inflation.
My recommendation is to stay ahead of it and don’t just push the low earners up to the minimum wage, compressing the others. There must be a way to adjust your benefits to cover unplanned increases for staff. As the old saying goes, “you can’t eat benefits,” generally holds true, now is the time to adjust the pendulum towards the salary side of the total compensation equation effectively covering the needed cash for salaries.