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Wage & Hour Laws

How Minimum Wage Increases Affect All Employees’ Pay


Jun 14, 2016

minimum wage

Cities and States Make Changes to the Minimum Wage

While policymakers continue to debate the pros and cons of raising the federal minimum wage, many states, cities and even corporations are taking matters into their own hands.

In 2015, at least 19 states increased their minimum hourly wage, and several large cities have followed suit — including Oakland, which hiked pay for low-income workers to $12.25 per hour, and Seattle, which now requires large employers to offer at least $11 an hour. Many additional cities have enacted even higher hikes that will take effect in the near future.

In response to the higher legal minimums, several high-profile employers such as McDonald’s, Walmart and Target announced plans to voluntarily raise their wages by $1 or more per hour. As a result, these changes have provoked questions about how the increases will affect the wages of employees across the board.

As organized labor and anti-poverty groups rally for a new $15-per-hour standard to help improve pay equity, public opinion remains split on the issue.

Ripple Effects of a Minimum Wage Increase

A recent PayScale survey ended in a stalemate, with 49.4 percent supporting an increase in the federal minimum wage and 50.6 against it. In a survey cited by the U.S. Department of Labor, three out of five small business owners with employees supported a gradual boost in pay, but only to the tune of $12 per hour.

A report on the survey declared that a pay hike would “immediately put more money in the pocket of low-wage workers who will then spend the money on things like housing, food, and gas. This boost in demand for goods and services will help stimulate the economy and help create opportunities.”

But it’s not necessarily just the lowest earners who are affected, research has found. Economists who study the impact of minimum wage increases anticipate that the effects could extend to higher-earning workers, as well. There are a couple of primary reasons for this:

Maintaining competitiveness as an employer. In markets where employers must compete for workers, a minimum wage increase can trickle upward as businesses adjust their wages to remain competitive.

Preserving relative wages within a business. Employees often pay attention to how much they make compared to their co-workers. If the lowest-paid employees suddenly receive a significant pay hike, workers higher up the pay scale could become disgruntled. To avoid discontent, some businesses choose to raise wages across the board.

How to Handle a Minimum Wage Increase

For companies affected by the minimum wage increases, adhering to the following best practices can help employers navigate the changes.

Know the law. Staying up-to-date on the new changes as they roll out is critical for all employers. Make sure your company has a solid understanding of which laws will affect your business.

Wage and hour training. When the laws change, you need to ensure that all employees are complying, and you can do that with wage and hour training.

Work toward pay equity. Companies that are proactive about improving pay equity among their workers ensure themselves a head start when minimum wage increases take effect.

Focus on the benefits. Many business leaders are concerned about the labor shifts that are likely to accompany an entry-level wage hike, but PayScale recommends viewing the changes as “good turnover” that will prune dead weight from your company and open opportunities to hire better employees.

Take a Proactive Approach to Pay Equity

Because the effects of a minimum wage increase are so complex, it’s impossible to predict exactly what will happen as states and cities across the nation commit to higher pay for low-income workers. But by staying on top of the changing laws and taking a proactive approach to pay equity, business leaders can help mitigate the impact on their companies.

To learn more about Workplace Answers’ wage and hour training, fill out the form on the right.

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