How businesses can handle provincial changes to minimum wage
This article was originally published in the Globe and Mail
Following Alberta’s lead, the Ontario government has committed to raising the minimum wage to $15 per hour within the next few years and, in addition, is upgrading the mandatory minimum vacation allowance for employees. Business owners now need to make a plan for how they will absorb these costs and determine what the impact will be on their business.
While the change to minimum wage is only targeted at those workers earning less than $15 per hour, the overall impact is scalable as the implications for compensation are far wider than simply bumping up the pay. In addition to forking over more for items calculated as a percentage of pay, such as payroll taxes, CPP, EI, benefits and company pension contributions, many business owners will also have to address pay increases for workers who are already earning more than $15 per hour to remain competitive while ensuring that pay is based on value to the organization.
A solid compensation plan ensures that employees are paid fairly, based on that role’s market value and worth to the organization. If those employees who are currently earning less than $15 per hour are bumped up, this will likely create a ripple effect on the entire pay grid necessitating salary increases for those who were already near the new minimum wage as well.
A holistic review of the company’s compensation policy may be necessary – particularly if the bulk of your employees are paid hourly, or earning a salary of around $30K - $40K per year.
If this is your company’s situation, here are the steps you should take now to make sure you’re ready when the minimum wage policies come into effect:
Start with an audit. It may come as a surprise, but many owners may are not actually aware of the specifics of individual jobs or contract entitlements, and it’s important to make sure you have all the facts before making the necessary changes. Now is the time to review all positions and contracts to determine pay scale, current vacation allowances and job responsibilities. If you haven’t already done so, an audit will help reveal whether the pay structure is aligned with your business structure and plan or if the pay is not being distributed effectively, among other things.
Determine the scope. Depending on your business, if you only have a few employees earning less than $15 per hour, it may not be a huge burden to simply increase those salaries. But if you have many employees and your salaries are spread from minimum wage upwards, you need to consider the compression issue identified above.
Determine job worth. Consider how you evaluate the roles within your organization. How do you establish the worth of each role to the business, especially as it relates to other roles? Does it have a direct impact on sales or new business? Is it integral to customer service or satisfaction? Does it require a higher level of critical thinking? By asking these types of questions you can determine whether your current system of evaluation is still appropriate. Review each job role to help identify whether any changes to responsibility are required.
Create a new pay grid. Based on your findings, you’ll now need to establish a new pay grid. In addition to accommodating government regulations, you may wish to increase the salary ranges to give you greater flexibility to absorb the minimum wage increases over the next couple of years.
Communicate changes clearly. Compensation sends a value message to employees as well as external customers who deal with your business. It goes without saying that any changes to compensation can affect employee morale and need to be communicated clearly and early. Yet it’s a step that’s often overlooked – or even mishandled. While an increase in wages is usually good news, it’s an important change that always requires a communication plan. This should happen before rumours can skew expectations, and include consistent messaging, personal interaction and the opportunity for employees to ask questions.
The good news is that both the Ontario and Alberta governments have given substantial notice before the wage increases need to take effect. Use that time to review your full compensation program to make sure that any actions taken are best for your business, rather than a knee jerk reaction to government policies. By acting now, you can hopefully mitigate the impact the reforms will have to your bottom line.