EMPLOYMENT LAW NEWS
Minimum Wage Increases: Planned vs. Indexed
In this article, we will discuss definitions, challenges, and the value of understanding planned and indexed minimum wage increases along with the complexity of managing wages in hundreds or even thousands of locations across multiple jurisdictions.
Not all minimum wage increase provisions are created equal. There are two types of minimum wage increases: planned and indexed. Although it may sound simple, each type of increase has differing implications for companies when complying with these laws.
In this article, we will discuss definitions, challenges, and the value of understanding planned and indexed minimum wage increases along with the complexity of managing wages in hundreds or even thousands of locations across multiple jurisdictions.
How Planned Wage Increases Work
First, let’s talk about planned increases. A planned minimum wage increase is a mandated rate that is on a scheduled cadence. This wage can widely vary from one jurisdiction to another, making it tiresome to track.
Hypothetically, a jurisdiction with planned minimum wage increases may look like this:
Employees must be paid minimum wages as follows:
- $15 per hour on and after Jan. 1, 2025;
- $16 per hour on and after Jan. 1, 2026;
- $17 per hour on and after Jan. 1, 2027;
- $18 per hour on and after Jan. 1, 2028;
- $19 per hour on and after Jan. 1, 2029;
- $20 per hour on and after Jan. 1, 2030.
In this example, payroll managers can plan several years ahead knowing what wage increases will be. Additionally, in our hypothetical example above, payroll managers will know that after Jan. 1, 2030, the minimum wage will remain at $20 until the law is amended.
At first glance, planned wage increases might seem easier to manage. However, there are still implications to organizations with multiple jurisdictions to manage. When planned increases aren’t researched and implemented accurately across organizations, there can be significant compliance issues for the organization such as:
- Inaccurately paying employees
- Competing in the marketplace
- Disparities in standard of living across regions
- Non-compliance with minimum wage laws
- Potential penalties and class action lawsuits
💡 Did You Know? GovDocs Minimum Wage Solution gives up to a 5-year forecast of planned and indexed wage adjustments for all jurisdictions that have published forecasted rates to easily monitor and plan for increases now and in the future.
How Indexed Wage Increases Work
Now we’ll switch gears to talk about indexed increases, which are different and come with their own challenges. With an indexed increase, a minimum wage rate is initially defined in a statute, but then increases annually based on an economic indicator, generally the Consumer Price Index (CPI).
Keep Informed
with GovDocs Employment Law News
❓ Consumer Price Index: It’s an economic indicator that market analysts keep track of every year. The CPI tracks the prices of various goods, runs them all through a formula, and comes up with a percentage to illustrate how the prices in goods have changed over time. It tells market analysts how many goods or services a consumer will get for a dollar.
As prices go up, consumers may buy fewer goods and services if their wages have not changed, so legislators often index minimum wage rates to maintain the purchasing power of minimum wage workers correspondingly with the increase in the CPI.
A hypothetical example of indexed wage provision might look like this:
- Beginning on Jan. 1, 2025, the minimum wage for employees shall be $20.
- Beginning on Jan. 1, 2026, and annually thereafter, the minimum wage for all employees shall be increased according to the Consumer Price Index (CPI) percentage increase from the prior year.
Challenges of Indexed Wage Increases
Wage rates indexed according to the CPI can be challenging from a compliance perspective for several reasons. First, a state or city may have planned increases beginning Jan. 1, but then indexed rates may take effect July 1. A close read of statutes is required to ensure that the change is noted and planned for ahead of time.
💡 Did You Know? GovDocs Minimum Wage Clients receive a monthly newsletter directly to their inbox that notes new and updated planned and indexed wage increases taking effect. This allows HR and compliance teams to quickly act on payroll updates, budgeting, and internal audits. Learn more ways GovDocs Minimum Wage can streamline your internal tasks.
Second, it is hard to judge future indexed rates for budgeting purposes. The new wage rate is calculated annually based on the economic performance of the previous year and, generally, only a few months are given to employers to prepare for the higher wage.
Third, companies must pay close attention to updates from jurisdictions with minimum wage laws to know the rate at which the minimum wage will increase. Printing a list of the next five years of wage increases is not an option here.
Additionally, there is no uniform effective date for when these new wages are announced. Generally, indexed wages update either on Jan. 1 or July 1, but keeping tabs on when each jurisdiction updates their wage rates for planning purposes can be a hassle.
In summary, indexed wages add to the complexity of tracking upcoming minimum wage rates at the state, county and city level.
Conclusion
In conclusion, grasping the differences between planned and indexed wage increases is helpful for organizations seeking to navigate the complexities of minimum wage requirements effectively.
Planned wage increases offer a structured approach, providing businesses with foresight and stability in budgeting and operational planning. Indexed wages, on the other hand, are linked to economic indicators, automatically adjusting wages to reflect changes in the cost of living. In those jurisdictions with indexed wage increases, businesses can be assured their employees’ wages are keeping rate with economic changes in the area. If you’re looking for a solution to seamlessly access minimum wage rates, indexing rates, exempt salary thresholds, tipped employee wages, overtime rates, and more, learn more about GovDocs Minimum Wage Solution >>
This Employment Law News blog is intended for market awareness only, it is not to be used for legal advice or counsel.
What is GovDocs?
GovDocs simplifies employment law compliance for large, multi-jurisdiction employers in the U.S. and Canada. The GovDocs software platform integrates three solutions in one convenient place to help you master the employment laws impacting your business. Whether you manage labor law postings, minimum wage or paid leave program, our products cut through research time, provide proactive insights into the everchanging landscape of employment laws and reduce the risk of noncompliance. The company is headquartered in Eagan, Minn.
The GovDocs Poster Store simplifies posting compliance for employers with less than 30 locations across all industries, offering a variety of posting products to meet your labor law compliance needs.
