The 'Tiered Effect' of the Raise in Minimum Wage

The Fair Workplaces, Better Jobs Act, or Bill 148, recently received Royal Assent in Ontario. There are numerous changes to the employment landscape that will be brought about by this new law. The change that has received the most attention is the raise of the minimum wage. Ontario has decided to increase its minimum wage to $15 an hour by 2019.

The justification for a raise to the minimum wage has merit. According to the Changing Workplaces, approximately one-third of Ontario's 6.6 million workers are vulnerable to new technology, a shrinking manufacturing sector and fewer union jobs, over other factors. This indicates that workers are in a tight spot and a higher minimum wage will significantly benefit them. https://goo.gl/SPRvr9

However, for many employers, it is not the raise minimum wage workers will receive that will pose the most significant challenge, but rather the expectations of existing employees who presently make more than minimum wage. The increase in the minimum wage will undoubtedly have a ‘tiered effect’ on other workers in your organization. This is especially true for that segment of employees that make near the amount of the new minimum wage.

It has been argued that the increase to the minimum wage is not a significant burden to employers as it will only affect a small amount of people. It has been claimed that only 25 per cent of Ontario workers are potentially affected. However, it is not just workers earning less than $15 per hour who are affected. Other workers earning at or over that amount will require salary increases to stay above their lower income coworkers. https://goo.gl/xScu0a

Unfortunately, for employers, there is no easy fix. If you provide proportionate increases for all workers in you company, the cost could be substantial. If you hold the line on workers’ wages that make over the new minimum wage, you risk your employees being discontent, which may have a direct impact on their output and your business.

One solution is for employers to stop looking internally for their wage comparison and look towards the marketplace. Developing and implementing a compensation plan, based on the market value of the position and its’ worth to your organization, will provide for fair, justifiable and quantifiable wage rates.

A very informative article, published in the Globe and Mail, https://goo.gl/rtEhkk outlines a process employers can take to make this happen. I have summarized the process, with own my suggestions incorporated.

First, start with an audit or inventory of your current payroll and benefits. Before you can start developing a compensation plan, you need to know where you are. Lay out all your positions, the total compensation afforded to each position as well as the duties and importance of each position to your company. This will allow you to determine if the compensation is distributed effectively. Moreover, this will allow you to determine if the wage assigned to a position is aprorpiate relative to the importance of the position to your organizations’ operation and goals.

The next step is determining the worth of the position. There are two primary factors that I believe need to be considered when determining the value of a position: how important the position is to your company and how it compares in the market. Most business owners or leaders will have an idea of the importance of a particular position to their company, once all the responsibilities are laid out and considered in the context of your companies’ goals. The market comparison is also important as an effective compensation system must recognize competition and retention.

Now it is time to create a new pay grid. It is wise to provide wide or larger pay bands so to provide flexibility, in consideration of changing job duties, incremental increases, future wage legislation, etc.

 As well, pay grids should be about the position, not the person. It is important that your compensation plan not be subjective. In light of new requirements for equal pay for the same work, under Bill 148, as well as pay equity, your compensation system must be justifiable and consistent.  There are many, arguably more effective ways to recognize a stand-out employee. 

Finally communicate the changes to your compensation plan to your employees. One of the goals of creating a compensation plan is to provide justification and reasoning to why a position is afforded a specific wage. Ensure that your employees are aware of what the steps were in creating the plan and more importantly, how and why the wages were assigned to each position. A better understanding of both the process and outcomes will lead to acceptance and buy-in.

Creating a compensation plan, especially post Bill 148, is an essential undertaking for any business. HRprimed can help! Whether you require a job evaluation and/or compensation plan, or you simply need expert HR advice at your fingertips, HRprimed has over 100 years of expert HR experience available at an affordable cost that will surprise you. 

Should you have questions or require assistance, please contact Darcy Michaud at 888-609-2071 x 101 or email [email protected]