Jul 11 2023
LATEST ON CALIFORNIA WAGE LAWS

CALIFORNIA WAGE LAWS: EMPLOYER ALERTS FOR 2023

By Susan A. Rodriquez, APC

Employers need to take action in response to legislation effective in 2023 that impacts California wage laws, wage requirements and related matters. This blog will discuss three bills: Senate Bill (SB) 3, passed in 2016 with provisions effective January 1, 2023; SB 1162, passed in 2022 and effective January 1, 2023; and a third bill, Assembly Bill (AB) 257, passed into law in 2022 but suspended pending a referendum in the November 2024 election.

Employers must be aware of the requirements enacted by SB 3 and SB 1162. They should review employment policies and procedures to ensure compliance and reposition as needed. While employers may be inclined to wait until the referendum vote is cast to take action regarding AB 257, it would be wise to prepare in advance for the possible changes it would implement.

Employers with California wage and hour questions may contact Southern California employer attorney Susan A. Rodriguez to discuss their changing responsibilities under these laws.

California Wage Laws Impacting Employers

Senate Bill 3 raised the minimum wage in California annually, with the 2023 wage requirements applying to employers of all sizes.  Senate Bill 1162 amended section 12999 of the California Government Code and section 432.3 of the California Labor Code, enacting new requirements for recordkeeping and pay transparency.

If AB 257 survives the referendum, the Fast Food Accountability and Standards Recovery Act, or FAST Recovery Act, will become effective.  The Act would create a Fast Food Council responsible for establishing standards of operation for fast food restaurants, including requirements related to wages, hours and working conditions.  The law also contains provisions related to retaliation and discrimination.

California Minimum Wage Changes under SB 3

SB 3 mandated annual increases in the minimum wage in California, beginning in 2017.  The minimum wage requirement of $15.50 per hour effective in 2023 applies to businesses with any number of employees in California.  Wage increases after 2023 are to be based on the Consumer Price Index. In previous years, employers with 25 employees or fewer were permitted to pay a lower minimum wage than employers with 26 employees or more.

Some municipalities in California have mandated a minimum wage within their jurisdictions that may be higher than required under California wage laws.  The University of California Berkley Labor Center maintains a list of these wage requirements.  Employers must pay the highest minimum wage required by the laws and ordinances that govern the jurisdiction where an employee works.

California Employer Responsibilities under SB 1162

SB 1162 implemented multiple requirements for employers of various sizes regarding pay transparency and records related to positions and wages.  First, employers with 15 or more employees must include a pay scale in all job postings, including those posted or shared by a third party.  This requirement applies if the position may be filled in California, whether the employee works on-site or remotely.  Additionally, an employer must provide an employee with the pay scale for the position he or she holds if requested.

California employer responsibilities now include keeping job titles and wage history records for all employees while employed and for three years after employment ends.  The Labor Commissioner may inspect these records to evaluate or identify wage discrepancy patterns related to race, ethnicity or sex.  An employer’s failure to keep proper records establishes a rebuttable presumption in favor of an employee wage claim.

Private employers with 100 or more employees must submit a pay data report to the Civil Rights Department of the Business, Consumer Services and Housing Agency.  These reports must be filed by the second Wednesday of May each year, beginning in 2023.

California Wage Laws and AB 257: Act Now or Wait and See?

Although the provisions of AB 257 have been suspended pending a referendum vote in the November 5, 2024 election, employers would be wise to evaluate their positions and plan ahead for the vote’s outcome. If the amendments to the Labor Code are approved by vote, the FAST Recovery Act will become effective.

The Act would establish a Fast Food Council responsible for establishing standards for the fast food industry. Cities and counties with a population of more than 200,000 will be permitted to create local councils that may make recommendations to the state council.

The Fast Food Council will have the authority to raise the minimum pay for fast food workers to as much as $22 per hour, with annual increases on the cap based on inflation. This and other standards established by the Fast Food Council will apply to restaurants with at least 100 locations throughout the US.

While AB 257 applies specifically to employers with businesses defined as “fast food restaurants” by the criteria outlined in the bill, mandatory wage increases and other requirements for fast food restaurants would likely put pressure on the restaurant industry in general to increase wages or modify operations to retain employees and keep pace.

Businesses that may be impacted by this law should take steps to evaluate their options and make adjustments that may help offset the potential challenges posed by AB 257.

Contact Attorney Susan Rodriguez with Your California Wage and Hour Questions

As a Southern California employer attorney at the Law Offices of Susan A. Rodriguez, APC, Susan Rodriguez has advised and represented employers in California for more than 30 years.  She helps clients stay up-to-date on changes to California employer responsibilities regarding wages and much more.  To discuss recent and pending updates to California wage laws or other employment law matters, contact Susan by calling (213) 943-1323 or completing the law firm’s online contact form.

Posted by Susan A. Rodriguez, Esq.

The information, comments and links posted on this blog do not constitute legal advice, and no attorney-client relationship has been or will be formed by any communication(s) with the blogger.  Do not send any confidential or privileged information to the blogger.  No information, documents or materials you send to the blog will be considered confidential or privileged by the Law Offices of Susan A. Rodriguez, APC or its lawyers and no information, documents or materials will be returned to you.  If you do send any information, documents or materials to the blog, you give permission for the blogger to include them on or in the blog.

For legal advice, contact an attorney at Law Offices of Susan A. Rodriguez, APC or an attorney actively practicing in your jurisdiction.

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Jul 8 2023
Merit and Pay Increases for 2024

Paycheck Increases For 2024: What Can Employers Expect?

Blue Whale has prepared the following summary advisory report on the current market and economic conditions to provide insights into how these factors may impact companies’ decisions regarding merit and pay increases in 2024.

U.S. Wage Increases in 2024

A) White-Collar Jobs

Pay increases in most white-collar roles are expected to slow down in 2024. This deceleration can be attributed to the economic outlook and general business sentiment prevailing in the market. For example, according to the World Economic Forum, most chief economists expect moderately weakened growth in the United States and Europe. Pay freezes – uncommon over the last three years- have become increasingly common as companies face economic headwinds and undertake job cuts. For example, SalesForce, Microsoft, and other leading employers have announced no salary raises for full-time employees in 2023, indicating a shift in the approach adopted by some major organizations.

B) Blue-Collar Jobs

On the other hand, and perhaps due to minimum wage increases in states like California, Washington, and other larger metropolitan areas, blue-collar roles will likely experience continued above-average wage growth in 2024. Beyond increases in the minimum wage, the other drivers for this upward trend are the scarcity of skilled labor and increased demand. Industries such as construction(1), manufacturing, mechanical, supply chain, and transportation, facing workforce shortages, are expected to offer higher wages to attract and retain talent.

c) Overall Projection: Wage and Salary Movement

Based on a review of wage growth, wage/salary movement for 2024 is likely to match or come in only slightly below 2023 levels. Projected pay movements for 2024 are as follows:

  • 4.8% for managers and executives
  • 5.1% for professional administrative positions
  • 5.2% for hourly administrative positions
  • 5.0% for production and blue-collar classifications

D) PROJECTED MERIT INCREASES, BUDGETS: 2024

In setting up budgets, it is essential to understand the difference between overall wage movements and planned increases. Overall wage movements include several personnel decisions impacting an employee's paycheck, including promotions, cost-of-living increases, salary adjustments, adjustments to meet new minimum wage guidelines, and merit-driven increases.

On the other hand, planned increases are the budgeted payroll percent increases set by employers for employee increases. Typically those increases are merit-driven, tied to an employee's performance; however, some companies have plans that call for a flat percent increase for all employees. Generally, depending on industry, and other labor factors, budgeted payroll increases trail overall wage and salary movements by .5% to .75%.

As we look ahead to 2024, a number of publications are forecasting budgets for increases ranging between 4.0% and 4.2%.

Understanding today's market is essential


As employers begin to budget for 2024, organizations must conduct wage benchmarking exercises promptly to assess their position relative to the market. Failure to benchmark wages may result in companies being unaware of potential disparities in market pay. According to the Bureau of Labor Statistics wage and benefits growth tracker, US wages across all jobs have increased by 5.0% as of May 2023. However, it is essential to recognize that specific roles in local markets may have experienced higher growth rates, potentially exceeding the overall average.

To illustrate the impact, let's consider a scenario where the market pay for critical roles has risen 8% in the past year. If a company granted its employees a 4% pay increase, they may unknowingly fall behind the market heading into 2024. To bridge this gap and remain competitive, the organization may consider providing an additional 4-5% increase, considering the observed market pay increases.

Our Software HELPS ORGANIZATIONS Maintain Market Parity

If keeping track of market movement is part of your organization's strategy, our compensation software, BlueComp can help. Developed by Blue Whale Compensation, BlueComp is a game-changing cloud-based compensation management application that stands out from the competition. What sets BlueComp apart is its remarkable ability to offer robust features and functionality as a freeware app. While competitors often charge monthly fees that can reach thousands of dollars, BlueComp provides unparalleled value at no cost. BlueComp is available as a freeware application. Its rich and robust compensation management features are ideal for organizations moving from spreadsheets to cloud-based applications. BlueComp comes with a wide range of features:

  • Track Market Movements
  • Easily Compare the Market Value for Different Jobs across multiple locations
  • Manage Pay Bands by Location
  • Easily Edit Employee Data
  • Simple Visual Representation of Salary Structure
  • Salary Suggestions and Compensation Assistant
  • Employee-level Suggestions for Reducing Pay Gaps
  • Market Differences stats to manage costs, address pay gaps, and keep pay in line with the company's compensation philosophy

Maintain Market Standing with BlueComp's Dynamic Market Capabilities

The estimates used by BlueComp to determine annual compensation changes come primarily from the Employment Cost Index (ECI). Published quarterly by the Bureau of Labor Statistics, the ECI is a comprehensive index that tracks wage and employee-related costs across various industries and sectors.

By leveraging ECI data within their BlueComp account, clients can make informed decisions, refine their budgeting, and ensure their compensation strategies remain competitive and responsive to market conditions.

As of 8/1/2023, all BlueComp accounts have been updated with the latest ECI figures. These figures are based on major industry sectors, metro areas, and employment size.

For more information on wage/salary escalation and how to interpret or use your account's information, contact a BlueComp representative today.

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Jun 6 2023
The Power of Incentives: How Bonus and Incentive Plans Propel Companies to Success While Controlling Payroll Costs

How to Develop Bonus and Incentives Plans that Get Results

A common denominator in companies that excel is comprehensive and impactful incentive and bonus plans that drive the organization’s growth and achievement of critical goals. A well-designed program can motivate employees, improve performance, and fuel organizational growth. In addition to their impact on success, bonus and incentive plan also serves as a great way to control payroll costs. In this article, we will delve into the top five reasons why US companies with bonus and incentive plans are far more likely to succeed than those without while effectively managing their payroll costs.

Performance-Based Compensation

Bonus and incentive plans provide a performance-based compensation structure that links rewards directly to individual or team achievements. This approach allows companies to reward high performers while ensuring that compensation aligns with the value created. By incorporating performance metrics and targets into incentive plans, organizations can control payroll costs by rewarding top performers who contribute significantly to the company’s success.

Cost-Effective Retention Strategy

Employee turnover can be a significant drain on an organization’s financial resources. According to a 2022 study by Keep Financial, 86% of employees would stay at the company for a period of time in exchange for a cash bonus. Bonus and incentive plans offer a cost-effective retention strategy by providing rewards and recognition to high-performing employees. By motivating and engaging employees through these programs, companies can reduce turnover rates and the associated costs of recruitment, training, and lost productivity.

Variable Compensation Structure

Unlike fixed salaries or traditional pay scales, bonus and incentive plans introduce a variable compensation structure that allows for flexibility in payroll costs. These plans can be designed to align with the company’s financial performance, ensuring that compensation expenses are directly tied to business results. During periods of economic downturn or financial constraints, companies can adjust the bonus and incentive payouts to control payroll costs without sacrificing employees’ overall motivation and performance. To best measure and calibrate a plan, companies should consider four key plan design principles:

1. Ensure accurate measurement

Align payout curves with organizational expectations and ensure that incentives for performance are aligned with accurate measures of financial results. Objectives, in addition to financial goals, can be qualitative in nature. For example, building customer loyalty, raising quality objectives, or elevating employee morale, can be key organizational goals.

2. Balance short-term and long-term incentives

Determine the proper mix of short-term and long-term incentives. Short-term incentives are usually aligned to annual revenue or profit objectives; long-term incentives, on the other hand, are generally linked to added shareholder value over a longer period of time.

3. Promote compliance

Plans must be designed to maximize tax benefits for the company (and its employees) and do not violate any IRS rules. This applies not only to public companies but also to private companies. Investors and/or company owners are demanding greater accountability on incentive plans and how they are aligned to value creation.

4. Keep the plan workable

Simplifying compensation plans is crucial to ensure their effectiveness, as overly complex plans can be incomprehensible for participants. The key is to maintain simplicity in goal setting, award calculation, and the number of metrics involved. Ideally, limiting the metrics driving awards to three to five is advisable.

From: The Controller’s Report (Issue 13-7)

Cost Containment through Goal Setting

Bonus and incentive plans enable companies to define specific goals and targets that align with the organization’s strategic objectives. By setting ambitious yet attainable goals, companies can channel employees’ efforts toward driving performance and achieving desired outcomes. This goal-oriented approach helps control payroll costs by allocating incentives to individuals or teams who meet or exceed predetermined benchmarks. It allows companies to focus on rewarding exceptional performance rather than providing across-the-board salary increases.

Return on Investment (ROI)

Bonus and incentive plans can be seen as an investment in driving employee performance and organizational success. When properly designed and implemented, these programs yield a positive return on investment. A study published in the Journal of Labor Economics found that incentive pay significantly increased productivity, with the average return on investment ranging from 30% to 50%. By strategically allocating resources to reward high performers, companies can control payroll costs while reaping the financial benefits of improved productivity and business outcomes.

Calibrate Budget and Payouts

When setting bonus levels, consider the 80/20 ratio: Set your payout at a level where only 20 employees reach no more than 80% of the payout. If more than 20% of employees get more than 80% of the projected payout, your goal is too low. Ideally, the rule is that the bonus budget should payout only 60% of the targetted goal.

Set Realistic Bonus Levels

In deciding the amount of a bonus, one should consider budgets, payout, number of employees in the plan, objectives, ROI, and the total cost at the end of the plan year. Additionally, the payout must be attractive enough to be meaningful to employees. Although there are a variety of plan models, the typical bonus amounts, expressed as a base of regular pay, are as follows:

Conclusion: In addition to their impact on motivating employees and driving organizational success, bonus, and incentive plans offer companies an effective way to control payroll costs. These programs provide a performance-based compensation structure, act as a cost-effective retention strategy, introduce variable compensation, allow for cost containment through goal setting, and offer a positive return on investment. By leveraging the power of incentives, companies can strike a balance between rewarding exceptional performance and managing payroll costs, ultimately propelling their success in the competitive business landscape.

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Jun 6 2023
How to Boost Your 2023 Plan with Power-Packed Compensation Strategies

Powerful Compensation Strategies for 2023

Is 2023 the Year to Upgrade Your Compensation Strategies? Absolutely.

As 2023 progresses, employers are experiencing recruiting fatigue and facing low employee engagement scores. Adding to the pressure are employee preference for flexible work arrangements and management reviewing their policies to entice employees to return to the office. In addition, new pay transparency requirements in various states, including NY, CA, and Washington, have promoted employers to update their recruiting policies with greater urgency for up-to-date salary information so they can make informed offers to prospective candidates. To help organizations meet these challenges, Blue Whale Compensation has compiled a series of compensation strategies that can help companies best manage their labor and talent needs. 

We are living through a historical shift in the workplace with rising wages and inflation. At no other time in recent history has compensation taken a front seat as a means companies can use to retain, engage, and attract new talent. A compensation strategy, however, should not be confused with solely giving employees aggressive increases. Unwarranted increases with no other plan are likely to make issues worse.

The plan needs to be based on a comprehensive analysis of budgets, labor needs, current and future talent needs, and basic compensation planning.

A Market Analysis is a Must

Carefully examine market levels and set appropriate salary benchmarks. Based on that information, consider market adjustments. Market adjustments should aligned to market trends, inflation, employee performance, market position, and budget. With inflation eating away any substantial wage gains, forecasting reports indicate that most employers will grant increases above those in 2022. In 2023, pay increases ranged from 4.5% to 5.7%. Furthermore, a preliminary analysis of Blue Whale clients’ plans suggests that a majority of them are inclined to offer a one-time bonus to address the substantial inflation witnessed over the past 18 months.

Merit-Base and Market-Driven Increases based on Performance

Combine your performance management information with an employee’s market position if you have ranges and midpoints. Using a merit-driven grid, you can justify larger, above-average increases to high-performing, underpaid employees.  Conversely, the matrix helps you develop a policy to slow down salaries that are way above market midpoints.

Download Matrix

Is setting merit based on employee performance and market position tricky? Blue Whale can help. We provide BlueComp, a freeware app that helps organizations manage their compensation program, including merit-based pay. For more information, click here to view how BlueComp can help you manage your compensation program.

Identify Employees at Risk

Mine your employee data and identify the employee population that is most at risk of leaving your company. Use your compa-ratios! Employees with the lowest compa-ratios are twice as likely to be looking for employment. Review your employee population via existing interview data: what departments, units, or types of employees are leaving at a faster pace, and what trends can you derive from their exit interviews?  

Closely examine your labor stats and compare them to specific benchmarks. For example, voluntary turnover rates are between 10% and 17%. Are your higher or lower? Employee tenure is another key barometer to measure at-risk groups. Employees who have more than four years with a company as twice as likely to stay with the company for another three to four years. Employees who have less than two years of experience are twice as likely to be looking for another job. In addition to critical stats, check data from your employee opinion or engagement surveys. They often contain valuable information that can help you identify at-risk employee populations.  

Implement a Basic Compensation Plan with Guidelines, Grades, and Ranges

Unlike the rapid wage movement that employers experienced in 2022, pay increases in 2023 have slowed down. Your plan must be appropriately aligned with current market conditions. The plan must include grades based on job leveling; ranges reflecting reasonable hiring salaries; policies addressing promotions and demotions; and, most importantly, a basic outline of your company’s compensation philosophy.

View Sample Comp Philosophy

Upgrade Your Performance Management System 

Over the last few years, AI-driven solutions have come into the marketplace with innovative technologies that have simplified the often complex and disliked world of performance management tools. Many tools exist to offset companies’ great challenges with their existing program. Most app-based solutions tend to be affordable, flexible, and easy to deploy.   

Consider Bonus for High Paid Employees, Not Increases

For high-paying employees versus additional salary, examine the market, and follow the following strategic budget: For employees over the midpoint, offer them a one-time bonus; for employees under the midpoint, add to their base.  Over time, this strategy will keep your costs even with the market, and you can target at-risk employees and perhaps even keep them. 

Selling your Plan

The biggest mistake companies make when resetting a compensation program is focusing their message on how the new plan will make the company more productive, efficient, and ahead of the curb. Instead, The message should focus on giving the employees the information they need to trust the process and the overall plan. This effort requires a significant public relations strategy that cultivates the organization’s needs for the immediate future and long-term success.

Let’s Start the Conversation

Blue Whale offers a full range of compensation services to help you achieve your business goals. Whether you’re looking to design a new compensation plan, analyze your current program, or stay up-to-date with the latest trends, we have the expertise and resources to meet your needs. Contact us to learn more about our compensation services and how we can help you take your program to the next level. Let’s start the conversation!

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May 30 2023
Best Plans to Reward High-Performing Employees

How to REWARD HIGH-PERFORMING EMPLOYEES

Instead of a more traditional annual review focusing on equitable pay among staff members, employers should consider compensating their employees, especially high-performing employees, based on merit and job performance over a predetermined period.

Advantages

  • Increased motivation-employees will be incentivized and, as a result, become more enthusiastic about doing a job well done
  • Higher work standards will be set to meet performance
  • Differentiation between staff who is is over/underperform-higher performing employees will be recognized for their job well done
  • More clearly defined company goals and objectives- employees will understand and deliver on work expectations which will lead to increased productivity and retention
  • Recruitment- there will be further opportunities for pay and advancement, which will intrigue job applicants

Disadvantages

As your organization looks to implement a merit-based compensation plan, consider the downfalls, including increased employee competition and employee bias:

  • Without clear standards on merit pay may be awarded, merit-based pay is subject to interpretation and bias from each individual’s supervisor
  • Employees may begin to expect raises and forget about the performance aspect of pay
  • Instead of unifying the interest of the company, merit pay can bring competition within the workplace
  • Lack of communication and understanding- it is important for the supervisor to clearly define and explain to employees how the merit pay system works

Set up Merit-Based Pay

As listed above, setting up a merit-based pay structure has advantages, including increased employee motivation and retention. Before implementing a merit-based pay structure, there are important steps to take, as indicated below:

Consider budget implications

Before implementing the merit-based pay policy, to better understand and account for the future, establish a budget for pay that may be rewarded for employee performance.

Develop Policy

It is important to have a consistent, documented merit-based policy that clearly defines how employees will be awarded additional pay for their performance based on existing metrics and timetables.  This will help eliminate bias and inconsistent merit-based pay within the workplace.

Communicate

Once your organization has decided to implement the merit-based plan, set standards, and account for budget implications, develop a communication strategy to communicate with your staff what is expected of them clearly and the company standards.

Clearly Communicate:

  • Company Objectives and timeline
  • Merit Standards
  • How merit pay will be calculated
  • Departmental and individual goals

Software Consideration

To eliminate the risk of error and to streamline operations, it is recommended that your organization utilizes software to track salary data and the merit pay structure.  The software can also help your organization evaluate metrics and the success of the merit-based pay system. 

Summary

Merit pay can go a long way by showing your organization that you honor their hard work and dedication. Employees will begin to feel appreciated, work harder, and display higher retention levels.

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