Tuesday, July 19, 2016

Living Wages in 2016 – How Do Employers Respond?


Seven months have passed since New York State’s minimum wage increased to $9.00 per hour, while the “fast food” minimum wage increased to $9.75 across most of the state, and to $10.50 in New York City. If you do not work in the restaurant industry, or in New York State, you may think this change doesn’t affect you. However, an increasing number of industries are concerned that these pay increases will have a negative domino effect on their organizations. In this issue of Astronology®, Astron Solutions discusses the challenges these new increases present to employers outside the fast food industry.

Last year, a New York Times online article expressed that the decision to raise the minimum wage for fast food workers “thrust(s) New York State to the forefront of the current experiment.” The article goes on to state that “based on projections from government data, the proposed $15 minimum wage for fast-food workers could represent more than 60% of the wage of a typical New York City worker when it takes effect at the end of 2018...” The New York Times online article highlights the 2003 minimum wage increase in Santa Fe, New Mexico, to compare and predict New York’s possible future. Despite a concentrated analysis with current modern tools, economic analyses of the Santa Fe increase suggest it had little effect on employment.

Last year when news broke on the $15 minimum wage legislation, Astron Solutions’ Michael Maciekowich noted that the impending changes caused quite a stir. According to Mike, “numerous Astron clients in New York State called, concerned that the ‘fast food’ minimum wage would in essence become the new state minimum wage, in that these organizations compete for entry level staff with the fast food industry. As the ‘fast food’ minimum wage increases to $15.00 over the next three to five years, organizations that compete for staff with this industry will have no choice but to raise their minimum wages to compete. This will also have a domino effect, in that this increase in the entry wage will create pay compression with coordinators and supervisors in the same work units. This compression will add unforeseen additional budgetary impact. For non-profit organizations, this will just add to concerns of how to address increasing pay expenses with already shrinking revenue dollars."

In accord with Mike’s thoughts, in April, New York Governor Cuomo signed a $15 minimum wage plan that will
  • Give New York City workers in businesses with at least 11 employees a $2 yearly minimum wage increase, starting with the minimum wage set at $11 at the end of 2016. A $15 minimum wage would be reached on 12/31/2018.
  • Give New York City workers in businesses with 10 or fewer employees a minimum wage increase to $10.50 at the end of 2016, then $1.50 each year. A $15 minimum wage would be achieved by 12/21/2019.
  • Workers outside of Nassau, Suffolk and Westchester Counties would have an increase to $9.70 at the end of 2016, with $0.70 year increases annually until reaching $12.50 on 12/31/2020. Afterward, the wage will increase to $15 via an indexed schedule set by the Director of the Division of Budget.
  • Workers in Nassau, Suffolk and Westchester Counties will have their minimum wage increased to $10 at the end of 2016, with $1 increase each year. A $15 minimum wage will be reached on 12/31/2021.
While some organizations are wondering if they can really afford the continual increases, other organizations seem to be slowly addressing this concern by creating their own solutions. This month, Jamie Dimon wrote an Op-Ed in The New York Times about JP Morgan’s plan to raise its minimum wage for 18,000 employees to between $12 and $16.50 per hour, with geographic and market factors considered.

Meanwhile, a Fast Company online article last year examined the popular fast food chain Chipotle, and how they could address the living wage issue. Chris Arnold, a Chipotle spokesman, mentioned in an e-mail to Fast Company that “we have never taken a position on the minimum wage and believe that a minimum wage or starting wage tells only part of the story; We already pay above minimum wage and offer benefits that are more than competitive.” Some of those benefits include paid sick & vacation days and tuition reimbursement. The Fast Company Online article explained that even if the company had the CEOs’ paychecks reduced to $1 per year and divided the compensation among the current employees, it would result in only a $0.55 increase per hour for an employee working 40 hours per week. So what can they do? Consider that in San Francisco, the minimum wage increased to $12.25, and will increase to $15 by 2018. Coincidentally, it had been noted that Chipotle raised its menu prices in the city by 10%. Such a move sends the message that customers have to share in the responsibility of lifting minimum wages. In short, if you can afford an $11 burrito, then you can probably pay for the same burrito with the cost increased by $1. Time will tell if this will work.

Could you adopt this approach if your organization is affected by minimum wage increases? Would you consider adopting this approach proactively? Have you prepared other solutions to address the minimum wage issue? Write to Astronology. We’d love to hear your input!

Tuesday, July 05, 2016

Save Your Employees from the Dark Side: Human Resource Lessons from Star Wars


Through George Lucas’ storytelling, filmgoers have come to know Darth Vader as the epitome of evil. But as viewers learn from the early 2000 Star Wars prequel trilogy, underneath that intimidating exterior beats the heart of a man whose turn to the dark side was largely a result of his frustration with his former employer.

What if the Jedi had an effective human resource program? Perhaps we would have seen Anakin chatting with Yoda over intergalactic eggnog at the Jedi holiday party, rather than Darth Vader bowing to the evil emperor in Revenge of the Sith.

So where did the Jedi’s HR program go wrong? At first glance, there doesn’t appear to be a problem. After all, the Jedi offer an excellent training program for new employees, surely making them one of the galaxy’s employers of choice. Where else can you learn how to wield your very own lightsaber and do Jedi Mind Tricks? They don’t offer that type of training even at Microsoft.

Concerned for employees’ futures, wise companies are.

In Revenge of the Sith, we see that Anakin, now a Jedi Knight, has become one of the Jedi’s “star employees.” However, even though Jedi Knight is a highly respectable title, Anakin is unhappy regarding his entry level status. He desperately wants to be promoted to Jedi Master believing that this new title would bring him the respect that he feels he deserves. What Anakin doesn’t seem to understand is that each Jedi Master has years of solid experience and knowledge of The Force under his or her belt. As a result of this disconnect, Anakin becomes increasingly frustrated and considers another job offer.

“A Career Progression program could have helped in this situation,” explains Michael Maciekowich, National Director, Astron Solutions. “Building career paths lets employees know that they are moving forward within an organization, giving them a sense of direction. Anakin would have realized that the Jedi cared about his career growth, and that the promotion to Jedi Master was an attainable goal, had there been a clear career progression program in place.”

Communicate you must.

As the story unfolds, we see that there is also a serious lack of communication between Anakin and the Jedi’s upper management, the Jedi Council. In fact, Anakin reveals to his wife that he feels lost and doesn’t believe that the Jedi Council trusts him.

“The Council could have considered a First Impression Survey, which is given to employees within their first few months of employment. This is a crucial time to provide integration into the organizational culture, encourage open communication, and let new employees know that you value their feedback,” says Jennifer C. Loftus, MBA, SPHR, PHRca, GPHR, SHRM-SCP, CCP, CBP, GRP National Director, Astron Solutions.

Offer great benefits, you should.

One major reason why Anakin eventually turns to the Dark Side is because he believes that they offer better “benefits” (and we don’t mean a good dental plan). The confused, young Jedi is concerned that he is going to lose someone close to him due to medical reasons, and believes that his new position will offer him the “ultimate” in healthcare insurance. As he quickly learns, however, his new employer wasn’t exactly truthful about the health coverage.

Perhaps the Jedi weren’t clearly communicating their own benefit plan to Anakin. Increased communication and attention to employee feedback could have helped in this situation as well.

“When choosing from the vast array of benefit offerings, it is important for HR professionals to analyze their employees' needs. The Jedi Council should have asked their employees what standard and voluntary benefits would be of most value to them and work to make those benefits available,” explains Loftus. It may be too late for Anakin / Darth Vader, but it’s not too late to save your own employees from the Dark Side. Remember, you don’t need The Force to make your team happy, just solid HR programs.

Tuesday, June 21, 2016

Preparing for the Fair Labor Standards Act (FLSA) Final Rule

On May 18, 2016, the Department of Labor (DOL) issued its Final Rule updating regulations defining which white collar workers are protected by the FLSA's minimum wage and overtime standards. Naturally, this ruling has been the topic of much discussion in the weeks following. How is your organization planning to adjust to the changes by December 1, 2016? In this issue of Astronology® we explore some ideas to help you prepare!

Key Provisions of the Final Rule
The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative, and Professional workers to be classified as exempt. Specifically, the Final Rule:
  1. Sets the standard salary level at the 40th percentile of earnings of full-timed salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47, 476 annually for a Full-year worker);
  2. Sets the total annual compensation requirement for highly compensated employees (HCE), subject to a minimal duties test, to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles, and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends the salary basis test to allow employers to use non-discretionary bonuses and incentive payments, including commissions, to satisfy up to 10% of the new standard salary level.

The effective date of the Final Rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

Practical Advice
So what does this mean? How do organizations prepare for these changes? Be proactive, and review two things today: your organization's job descriptions and current salary ranges.

Job Descriptions: If your job descriptions are based on the FLSA Administrative, Professional, or Executive exemption test, then you should already be in compliance with the new ruling and shouldn't have too much to be concerned with other than meeting the new salary threshold. Why? Because the major concern and / or determining factor in classifying a job's exemption status is the positions' use of discretion and independent decision-making. For instance, both a supervisor and a team leader can making, whereas a team leader will not have the same independence or impact in his/her decision making over a team. Although both positions involve some form of supervision over two or more employees, they are not in the same Executive exemption category.

Key areas to clarify and include in your job descriptions that will help distinguish the level of the position are the following:
  • The level of discretion required and justified by the essential functions of the job.
  • The level of independent judgement required to meet the essential functions of the job.
  • Minimum education requirements required to perform the essential functions of the job.
  • The number of employees, if any, the position directly supervises
  • Clarification of the position's impact in recommending actions that impact supervised employees, such as hiring firing, and setting salary levels.

Salary Threshold: Paying at or above the new minimum salary level for maintaining exemption status under the FLSA may create salary compression and impact your organization's current pay / grade system. A trend among recent Astron client projects is to separate one pay system into two: Non-exempt and Exempt. For the exempt salary structure, set the lowest range minimum at the new threshold ($913 / week, or $47,476 / year). Client organizations are find that this grade separation allows for better pay system administration, while maintaining compliance with the FLSA regulations.

Pay compression may occur if you then need to adjust individuals to the new exempt pay threshold and their new salaries are at or above either their supervisors' or employees with more experience in the same position. Astron recommends conducting a thorough compression review of at least the bottom two pay grades in the new exempt job family. Keep in mind while conducting the compression analysis that 10% of the employee's total pay for meeting the threshold can come from non-discretionary bonuses / incentives paid out quarterly.

Supportive Tools
Is your organization considering reviewing your job descriptions as a result of the new rule? One of our Flare® modules is designed to make updating job descriptions easy! We also have a job evaluation module with a built-in Position Description Question (PDQ) that can help you determine position exemption status, and a module for creating organizational charts. Why not contact us today to learn more? If you would like to learn more about how to best audit your pay systems in light of the FLSA changes, contact us to learn more about our compensation strategy design services.

Has your organization already created a game plan to meet the new requirements form the Final Rule? We'd love to hear your insights and suggestions!

Tuesday, May 24, 2016

Fair Labor Standards Act (FLSA) Regulations Update

On May 18, 2016, the final ruling was released, updating regulations defining which white collar workers are considered protected by the FLSA’s minimum wage and overtime standards.

Key Provisions of the Final Rule

The final rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative, and Professional workers to be classified as exempt.  Specifically, the final rule
  1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);
  2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and
  3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
Additionally, the final rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.

The effective date of the final rule is December 1, 2016. The initial increases to the standard salary level (from $455 to $913 per week) and HCE total annual compensation requirement (from $100,000 to $134,004 per year) will be effective on that date. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.

Compensation 101: Why Should Organizations Utilize Pay Ranges?


At Astronology® we like to explore all angles of a situation. In the past we’ve written articles on compensation related topics like green circle rates (employees paid below the minimum of the pay range) and red circle rates (employees paid above the maximum of the pay range). This article examines why organizations should make the effort to set pay ranges in the first place, and what value these ranges add to an organization. 

The term “pay range” is not one that is succinctly explained. The human resources section of About.com describes a pay range as: “…the range of pay established by employers to pay to employees performing a particular job or function. Salary range generally has a minimum pay rate, a maximum pay rate, and a series of mid-range opportunities for pay increases.” While this definition is foundational, it begins to direct us towards the goal of figuring out the how of the pay range question, but not really the why.

Erisa Ojimba, in a Salary.com article, explains that “a company’s pay structure is the method of administering its pay philosophy.” If developed logically and communicated successfully, the pay structure will strongly reflect your organization’s pay philosophy and give confidence to employees. A 2014 survey from SHRM noted that “employees ranked compensation / pay above job security as the most important contributor to job satisfaction.” Clearly, it is important for pay structures to be organized and strongly demonstrate competitive compensation in order to attract and retain employees. 

When developing a pay structure the following needs to be determined:

  • Relevant data for establishing the relative value of a particular job to your organization. 
  • Relevant pay range for a job with the stated value to your organization. 
  • The value of each job position within the allotted pay range.

Once you have developed a pay structure, an on-going challenge is determining your organization's annual compensation budget. When set correctly, pay ranges can help you determine if you’re paying employees too little or too much.

When making the choice of how to structure pay ranges for your organization, the most important factors to consider, according to Jennifer Loftus, National Director of Astron Solutions, are the following:

  • Your organization’s size
  • Your organization’s fiscal constraints
  • Your organization’s culture
  • The size of your HR department
  • Your compensation philosophy    
 
According to Jennifer, "while similar in concept, compensation structures are uniquely different for each organization. What works successfully in one company may be disastrous in another. Your organization must balance the five items above to determine the best suited structure for achieving your unique organizational goals. Without some type of pay system, however, your organization may end up underpaying and overpaying some employees, sacrificing fiscal controls, losing your star employees, and rewarding behaviors or competencies that don't achieve organization's strategic goals." The up-front time and effort required to develop a pay structure will provide you and your organization with a positive return on investment in both the short - and long-terms.