Minimum Wage Increase: Impacts for Employers and Employees, and Total Rewards Strategies
The word labour shortage no longer surprises anyone. Today, employers are turning to a number of options to help them fill vacancies in the face of increasing labour scarcity. The world of work has been turned upside down and the changes will only continue.
A new practice has been brought to light by the role of low-skilled positions. Many employers have turned to recruiting workers with fewer skills and training them themselves. This trend has proven to be positive for both employers and employees.
The announcement of an increase in the minimum wage directly affects low-skilled workers and adds pressure on the total payroll of organizations. This exercise is done every year by many organizations; thus, employers must update their pay scales to meet this new legal minimum threshold.
Minimum Salary Increases in May 2022
An increase in the minimum wage from $13.75 to $14.25 per hour was announced by Mr. Jean Boulet, Minister of Labour, Employment and Social Solidarity, Minister of Immigration, Francization and Integration, and Minister responsible for the Mauricie region.
In 2020, the wage growth was around 6.8%, and this increase reflected the loss of many low-wage jobs, which had the effect of increasing the average wage.
This year, it is a 5.56% increase to bring it closer to the average hourly wage. For employees receiving tips, the increase will reach $11.40/hour (+0.60%).
This increase will take effect on May 1, 2022.
Impact on Employees
This increase is consistent with the desire to help businesses remain competitive while respecting their ability to pay, as well as to increase the purchasing power of the Quebec labour force.
This increase results in an annual gross salary of $29,640 on the basis of a 40-hour week. Remember, the tax rate reduces this salary to an amount of $24,273 to meet the lifestyle needs of employees.
Moreover, the forecasts predict a decrease in skilled and low-skilled jobs by 2028, which are the ones that could be affected by this minimum wage increase. This decline will be to the benefit of highly skilled jobs.
It may be interesting for employers to look at different tax incentives and optimize the payment of their compensation package, if applicable. Indeed, these can mitigate the tax impact on the salary of employees.
Impact for Employers
In Quebec, the forecast for salary increases in 2022 is 2.9%, so the actual impact of the increase could be as high as 3.2 – 3.3%. This is obviously a cost pressure for smaller companies. In 2022, 5% of Quebec organizations plan to freeze salaries.
The impact of the minimum-wage increase is reflected in the salary revisions of organizations and their total payroll.
As such, employers can rely on salary forecast reports from regional compensation surveys. Moreover, organizations’ salary structures track market indexes through the progression of the Consumer Price Index (CPI). This index tracks the capacity of payers. Furthermore, to this we add revisions to the minimum wage rate, which varies cyclically in a relative manner. All of these indicators are linked together.
The different impacts therefore point to the relevance for organizations to arm themselves with proper management tools, a solid structure and a clear positioning regarding their total compensation. The objective is to ensure internal equity (through the different job categories in the organization), external equity (through date and market forecasts), and individual equity (through consideration of the individual’s position within his or her job). This structure also makes it possible to differentiate the compensation of high-performing employees while avoiding situations of inequity.
Total Rewards Strategy
Before elaborating a Total Rewards strategy, it is important to understand the concept. Total rewards refer to all the benefits an employee receives from his or her employer. This includes salary, as well benefits, but also non-monetary benefits such as career development opportunities and workplace well-being.
Total rewards strategies differ from company to company, but defining them is more important than ever. It is important to note that compensation and the ability to attract and retain employees in organizations are not based on salary alone. Companies that have a far superior salary positioning in the market, but have a toxic work environment, are no longer successful or acceptable. Today, the generations of workers in the market are looking at the overall experience and the elements offered in compensation programs; this is called the consideration of total rewards package.
What do employees expect and how should employers prepare for it?
- Professional development at its fullest;
- Recognition of the individual’s evolution through progression zones;
- A clear and communicated compensation structure;
- An inviting and pleasant environment;
- Flexibility in work schedules;
- Optimization of benefits to provide a base of security for employees (assistance with retirement savings, prevent sick days, etc.).
In conclusion, it is more important than ever to analyze competitiveness in order to be considered an employer of choice, while remaining fair to your current employees. On the other hand, it is no longer simply a question of base salary in order to attract, mobilize and retain a candidate or an employee. All the elements of the total compensation discussed above must be analyzed to maintain the right positioning on the market.
In the end, a clear plan can guide you in the implementation of actions aimed at reinforcing your employer brand!