2018 Compensation Budgeting Forecast Part 1: Base Pay Adjustments

As we move towards Labor Day, Astron Solutions is getting more and more requests for information regarding 2018 compensation budgeting. This is part one of a three part review of 2018 compensation planning projections.  Part 1 focuses on base pay, and includes a review of the impact of 2018 minimum wage changes.

2018 U.S. Economy

It is always important to put into perspective compensation adjustment projections given general economic predictions for the same time period.  According to the Economic Research Institute (http://www.erieri.com/), the following are projections on key economic indicators for 2018:

• Gross domestic product in the U.S. is expected to increase by 2.5 percent next year, up from 2.3 percent in 2017 and 1.6 percent in 2016 — an improvement, but below the Trump administration’s goal of 3 percent growth for the economy.
• Inflation is forecast to slow to 2.4 percent, down from 2.7 percent this year but higher than the 1.3 percent reported for 2016.
• The unemployment rate is predicted to fall slightly to 4.6 percent, down from 4.7 percent this year and 4.9 percent in 2016.

2018 Minimum Wage Changes

Will your organization’s operating location(s) experience a minimum wage change in 2018?  Following is a summary of anticipated changes in the coming year (www.thebalance.com/2017-federal-state-minimum-wage-rates-2061043).  Note that states, cities, or territories following the Federal minimum wage of $7.25 are not listed in this summary.

• Alaska: $9.80 (Annual indexing has begun)
• Arizona: $10.00 (Raised to $12.00 through Indexed Annual Increases between 1/1/2018 to 1/1/2020)
• Arkansas: $8.50
• California: $10.50  ($11.00 to $15.00 in $1.00 Indexed Annual Increases between 1/1/2018 to 1/1/2022)
• Colorado: $9.30* ($9.30 to $12.00 in $0.90 Indexed Annual Increases between 1/1/2018 and 1/1/2020)
• Connecticut: $10.10
• Delaware: $8.25
• District of Columbia: $12.50 (Increases to $15 with Indexed Annual Increases between 7/1/2018 and 7/1/2020)  Florida: $8.10*
• Georgia: $5.15 if not covered by Federal Regulations otherwise $7.25 (Federal Minimum Wage)
• Guam: $8.25
• Hawaii: $9.25, $10.10 by 1/1/2018
• Illinois: $8.25
  • Chicago $11.00 July 2017, $12.00 July 2018, $13.00 July 2019
• Maine: $9.00 ($10.00 to $12.00 in $1.00 annual Increases between 1/1/2018 to 1/1/2020) (Indexed annual increases will begin on 1/1/2021)
• Maryland: $9.25,  Increases to $10.10 7/1/2018
• Massachusetts: $11.00  ($3.75 for tipped employees), $16.50 per hour for working on a Sunday
• Michigan: $8.90, $9.25 by 1/12018 (Indexed annual increases will begin on 4/1/2019)
• Minnesota: Large employers are required to pay workers $9.50/hour and small employers (less than 500k in annual sales) $7.75 (Indexed Annual increases will begin on 1/1/2018)
• Missouri: $7.70
• Montana: $8.15 ($4.00 for businesses with gross annual sales of $110,000 or less) (Annual indexing has begun)
• Nebraska: $9.00
• Nevada: $8.25 Nevada’s minimum wage is set at $1.00 above the federal minimum wage for firms not providing health insurance. The minimum may be increased more than $1.00 above the federal minimum wage if cumulative inflation, as measured by the CPI-U, is larger than the percentage change in the federal minimum wage since December 31, 2004.
• New Jersey: $8.44 (Annual indexing has begun)
• New Mexico: $7.50
• New York: $9.70 ($10.40 by 12/31/2017 with $0.70 Indexed Annual Increases from 12/31/2017 to $12.50 by 12/31/2020. Starting 1/1/2021, the rate will be adjusted annually for inflation until it reaches $15 an hour)
  • More information on New York minimum wage increases.
• Ohio: $8.15* ($7:25 for employers with gross sales of $283,000 or less) (Annual indexing has begun)
• Oregon: $10.25  (From $10.75 to $13.50 from 7/1/2018 to 7/1/2022)
• Rhode Island: $9.60
• South Dakota: $8.65  (Annual indexing has begun)
• Vermont: $10, $10.50 by 1/1/2018, Annual indexing begins 1/1/2019
• Virgin Islands: $9.50($4.30 for employers grossing $150,000 or less), $10.50, 6/1/18
• Washington: $11.00 (From $11.50 to $13.50 from 1/1/2018- 1/1/2020)
• West Virginia: $8.75

Remember to follow and account for current minimum wage legislation changes in your location(s), as the cost of minimum wage adjustments often are not included in compensation budgeting projections.  These changes may very well have a domino effect throughout an organization’s formal pay structure.

Summary of 2018 Projections

The following is a summary of compensation budgeting projections from the Economic Research Institute (www.erieri.com) and WorldatWork (www.worldatwork.org).

Economic Research Institute:

WorldatWork:

Total U.S. Salary Budget Increases by Employee Category

Astron Solutions’ General Conclusions

1. It appears that we are continuing with an approximate 3% compensation budgeting factor moving into 2018.
2. All organizations need to be cognizant of their state and / or local minimum wage changes, and build into their budgets the direct & indirect impact of these legislative changes.
3. Astron Solutions has noticed a marked increase in career path development to meet the retention needs surrounding millennials in the workforce. These career-based promotions also need to be incorporated into base pay compensation adjustments. Astron recommends moving these positions out of the mainstream salary structure, in order to better track the impact(s) of career-based adjustments.
4. Organizations also need to be aware of potential federal and approved state minimum pay for overtime exemptions, and the potential budgetary impact of making additional adjustments in exempt / non-exempt classification.
5. Organizations also need to be sensitive to the impact of recruiting and retaining “mission critical” positions, and isolate these positions in order for appropriate compensation levels to be accounted for in the 2018 budget.

Please stay tuned for more!  Our next issue of Astronology® explores trends in incentive compensation in 2018.

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