[vc_row][vc_column][vc_column_text]By: Randall Sutton
Saalfeld Griggs Employment Law & Litigation Practice Group
Oregon Business Lawyers
Once again on the cutting edge, the Oregon legislature has passed a statewide increase to the minimum wage, making Oregon minimum wages among the highest in the nation. We expect Governor Kate Brown will sign the bill into law this week. Taking a three tier approach, which will roll out over the next six years, the increases look like this:
HIGHLIGHTS OF NEW OREGON MINIMUM WAGE RATES:
Portland Urban Growth Boundary:
Beginning July 1 of this year, $9.75, which increases 50 – 75 cents per year until July 1, 2022, when it tops out at $14.75.
“Urban” Counties: Beginning July 1 of this year, $9.75, which increases 50 – 75 cents per year until July 1, 2022, when it tops out at $13.50. The “urban” counties located in the Willamette Valley, Coast and Bend area include Marion, Polk, Linn, Lane, Douglas, Clackamas, Yamhill, Washington, Deschutes, Lincoln and Tillamook counties.
“Non-Urban” Counties: Beginning July 1 of this year, $9.50, which increases 50 cents per year until July 1, 2022, when it tops out at $12.50. Counties included in the “non-urban” category are spread across the more remote regions of the state, including Baker, Coos, Harney, Klamath, Malheur, Union, Wallowa and similar counties.
Beginning July 1, 2023, the minimum wage rate will resume adjusting annually based on inflation. The increases apply to all workers with no exceptions, and to all employers regardless of size or industry.
New Wage Compression Challenges:
Obviously, the increases in minimum wage place a heavy burden on employers employing a large number of entry level or lower skilled workers. Businesses in this category face the prospect of increasing prices, layoffs, or hiring higher skilled workers to replace entry level workers.
However, due to wage compression, the increases to the minimum wage affect even those employers with a diverse and more highly compensated workforce. Wage compression occurs when there is no meaningful difference between the pay of employees who have significantly different levels of seniority or job responsibilities. Even if a company’s wage rates are high enough to avoid an immediate problem, the annual increases may quickly cause the pay of lower skilled employees to bump up against the pay of more experienced employees.
Wage compression is not illegal, but it poses significant practical problems. Employees who started at minimum wage and have slowly worked their way to a rate of $10 – 12 per hour are likely to feel that their pay scale should be adjusted to retain the $1 – 2 dollar differential. Employees earning significantly more than minimum wage may likewise feel their pay should be ratcheted up in order to preserve the more significant difference between their rate and the rate of entry level workers.
The gradual annual increases of 50 – 75 cents per hour may make 2022 seem like a long way off, particularly for employers who already pay entry level workers above minimum wage. However, a discussion of strategy and a plan to avoid wage compression is not something that should be put off. The new minimum wage rates are here to stay and the creeping nature of minimum wage will not reward procrastinators. Wage compression creates dissatisfaction among employees, which can lead to low morale, retention problems, loss of productivity, and weakened trust in company management.
Possible Approaches to Minimum Wage Increases & Wage Compression Challenges
The minimum wage increases require consideration of what may be the “best” of a number of bad alternatives. With that in mind, some short-term strategies worthy of consideration include:
• Avoid sharing personal views about the minimum wage increases company-wide. The reality is that we are stuck with the structure as it now stands, so complaining about it among the workforce is likely to be counter-productive. Entry-level employees directly benefit from the increases and taking a negative stance on something that the law requires can harm morale, foster distrust in management and could possibly provide fodder for retaliation claims from employees who speak up about wage concerns.
• Across-the-board increases are generally not required to manage wage compression. The focus should be on the lower wage jobs in the company. In most cases, the employer can find a sweet spot where wages need not be adjusted, so decide what the lower end of the wage range is in your company, and adjust only the wages in that range.
• Increases in one type of job may not result in compression as compared to an entirely different category of job. For example, the rate of a lead janitor might need to be increased to reflect the increased minimum wage paid to the entry level janitor, but those increases have no compression effect on clerical workers who may already be earning slightly above minimum wage.
• Where the increase in the base rate of pay for a higher paid employee is not practical or desirable, employee morale issues may be addressed by implementing bonus or production based incentives, which tie increased pay to exceptional performance. This puts the ability to avoid wage compression in the hands of the employee.
• Create a long-term plan for how the company will deal with the annual escalation in minimum wage rates. This is particularly important for companies that have not established any formal pay structure with minimum, mid-point and maximum rates. Establishing pay grades tied to performance, recruiting, retention or other factors can help simplify merit pay increases and ensure that increases made or denied today won’t pose a complication as the minimum wage rates rise over the next few years.
Conclusion
The minimum wage increases were hotly debated at the Oregon legislature, with proponents of the increases disappointed that the increases were not higher nor put into place sooner. That “it could have been worse” does not minimize the challenge employers now face. For most Oregon employers, discussion, strategic thinking and a more formal analysis of company pay structure is now necessary.
The information in this article is not intended to provide legal advice. For professional consultation, please contact Randall Sutton (rsutton@sglaw.com) or any member of the Saalfeld Griggs employment law team.[/vc_column_text][/vc_column][/vc_row]