Planning for a Potential Minimum Wage Hike

President Biden’s spending plan points to upcoming efforts to increase the nationwide minimum wage to $15 per hour.

President Biden signed 30 executive orders in his first three days in office, and one signed Friday, January 22, lays the groundwork for a $15 per hour minimum wage for federal workers. The executive order doesn’t mandate or effect an increase for federal workers. Rather, it directs the federal Office of Personnel Management to develop recommendations to get employees to at least that minimum hourly rate.

While the executive order and spending plan point to future efforts at broad increases to hourly wages, no immediate action is required from employers.

What Educational Entities Need to Know

Even as we enter budget planning season, no action is needed from school districts and other educational entities. It would be premature to engage in cost planning for increasing minimum hourly wages for the next school year at this point.

The proposed minimum wage is nearly double the current minimum wage of $7.25 per hour, so significant adjustments nationwide will be needed. If adopted, this will be an unprecedented increase and will have an impact across the entire country, especially in rural areas where wages are lower and already close to the current minimum wage.

We also can’t ignore the many staff paid more than $7.25 per hour but less than $15 per hour. Employers will need to do their best to avoid compressing pay by raising the floor without making adjustments to pay for staff already above the current minimum wage. This would create an accordion effect by squeezing the many employees in that pay zone up to the new minimum wage and would result in various problems like:

• Supervisors and subordinates paid the same or similar rates
• Experienced and inexperienced staff paid the same or similar rates
• Different levels of jobs paid the same or similar rates (e.g., clerical assistant and director’s secretary)
• Collapsed pay grades, where multiple separate grades are condensed to one

The last time the minimum wage was increased, the increase was small, relative to the current proposal, and it was phased in over three years. Any adjustments to the current minimum wage would very likely be phased in over time to allow employers to account for the significant cost increase.

Current economic challenges in the U.S., including high unemployment, decreases in small business revenue, and layoffs and shutdowns across the country, would be exacerbated by a quick minimum wage increase.

Next Steps

Fortunately, we’re aware an increase to the minimum wage may be coming and won’t be blind-sided if or when Congress approves an increase. However, given we don’t know how the change might be phased in, it’s premature to engage in planning.

As always, TASB HR Services will keep members informed about changes as soon as they happen, including providing implementation guidance and services to support compliance.