As we move past Labor Day, Astron Solutions is getting more and more requests for information regarding 2020 compensation budgeting. This is part one of a three-part review of 2020 compensation planning projections. In this Astronology®, we focus on base pay and explore the impact of 2020 minimum wage changes.
2020 U.S. Economy
Important influences on base pay levels in 2020 will be projected job growth and major economic indicators such as GNP (Gross National Product) and inflation levels. The following is a summary from the Board of Governors of the Federal Reserve Board (https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20190619.htm):
- U.S. GDP growth will slow to 2.1% in 2019 from 3% in 2018. It will be 2% in 2020 and 1.8% in 2021. That’s according to the most recent forecast released at the Federal Open Market Committee meeting on June 19, 2019. The projected slowdown in 2019 and beyond is a side effect of the trade war, a key component of Trump’s economic policies.
- The unemployment rate will average 3.6% in 2019. It will increase slightly to 3.7% in 2020 and 3.8% in 2021. That’s lower than the Fed’s 6.7% target. Most job growth is in low-paying retail and food service industries. Some people have been out of work for so long that they’ll never be able to return to the high-paying jobs they used to have. Structural unemployment has increased.
- Inflation will average 1.5% in 2019. It will rise to 1.9% in 2020 and 2.0% in 2021. The core inflation rate strips out those volatile gas and food prices. The Fed prefers to use that rate when setting monetary policy. The core inflation rate will average 1.8% in 2019, 1.9% in 2020, and 2.0% in 2021. The core rate is slightly below the Fed’s 2% target inflation rate. The U.S. inflation rate history and forecast provides a good basis for predicting the coming years’ inflation levels.
2020 Minimum Wage Changes
Will your organization’s operating location(s) experience a minimum wage change in 2020? Following is a summary of anticipated changes in the coming year (https://www.shrm.org/resourcesandtools/legal-and-compliance/state-and-local-updates/xperthr/pages/minimum-wage-rates-by-state-and-municipality.aspx). Note that states, cities, or territories following the Federal minimum wage of $7.25 are not listed in this summary. In addition, many large cities in various states have established minimum wages that are often higher than the state minimum wage listed.
- Alaska $9.89 Adjusted for inflation – January 1, 2020, and every January 1 thereafter
- Arizona $12.00 – January 1, 2020 Adjusted for inflation – January 1, 2021, and every January 1 thereafter
- Arkansas $10.00 – January 1, 2020
- California – Small Employers (25 or Fewer) $13.00 – January 1, 2020
- California – Large Employers (26 or More) $14.00 – January 1, 2020
- Colorado $12.00 – January 1, 2020
- Connecticut $12.00 – October 1, 2019; $13.00 – September 1, 2020
- Delaware $9.25 – October 1, 2019
- District of Columbia $15.00 – July 1, 2020
- Florida $8.46 Adjusted for inflation – January 1, 2020, and every January 1 thereafter
- Hawaii $10.10
- Illinois $9.25 – January 1, 2020
- Maine $12.00 – January 1, 2020
- Maryland – Small Employers (14 or Fewer) $11.00 – January 1, 2020
- Maryland – Large Employers (15 or More) $11.00 – January 1, 2020
- Massachusetts $12.75 – January 1, 2020
- Michigan $9.65 – January 1, 2020
- Minnesota $9.86 Adjusted for inflation – January 1, 2020, and every January 1 thereafter
- Missouri $9.45 – January 1, 2020
- Montana $8.50 Adjusted for inflation – January 1, 2020, and every January 1 thereafter
- Nebraska $9.00
- Nevada $9.00 – July 1, 2020
- New Jersey – Small Employers (5 or Less) & Seasonal Employers $10.30 – January 1, 2020
- New Jersey – Large Employers (6 or More) $11.00 – January 1, 2020
- New Mexico $9.00 – January 1, 2020
- New York – Fast Food Employees $13.75 – December 31, 2019
- New York $11.80 – December 31, 2019
- Ohio $8.55 Adjusted for inflation – January 1, 2020, and every January 1 thereafter
- Oregon – Nonrural Counties $12.00 – July 1, 2020
- Oregon – Rural Counties $11.50 – July 1, 2020
- Rhode Island $10.50
- South Dakota $9.10 Adjusted for inflation – January 1, 2020, and every January 1 thereafter
- Vermont $10.78 Adjusted for inflation – January 1, 2020, and every January 1 thereafter
- Washington $13.50 – January 1, 2020 Adjusted for inflation – January 1, 2021, and every January 1 thereafter
- 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 2020 Projections
The following is a summary of compensation budgeting projections from WorldatWork (www.worldatwork.org)
| Employee Category | Projected 2020 Mean | Projected 2020 Median | Actual 2019 Mean | Actual 2019 Median |
| Nonexempt hourly, nonunion | 3.3% | 3.0% | 3.2% | 3.0% |
| Nonexempt salaried | 3.2% | 3.0% | 3.1% | 3.0% |
| Exempt salaried | 3.3% | 3.0% | 3.2% | 3.0% |
| Officers/executives | 3.3% | 3.0% | 3.3% | 3.0% |
| All | 3.3% | 3.0% | 3.2% | 3.0% |
And from Salary.com (www.salary.com):
Salary.com, which provides compensation data and analytics, projects that salary-increase budgets will again see median growth of 3 percent in 2020 in all employee categories. The firm expects the following mean salary-budged increases for 2020:
- Executives: a 3.2 percent rise, unchanged from 2019.
- Other managers: a 3.3 percent rise, up from 3.1 percent.
- Exempt employees: a 3.3 percent rise, up from 3.2 percent.
- Nonexempt employees: a 3.3 percent rise, unchanged from 2019.
And a final look from the Bureau of Labor Statistics (www.bls.gov):
“In a finding that’s along the same lines as most projections, wages and salaries for private industry workers increased 3.0 percent for the 12-month period ending in June 2019 compared with an annual increase of 2.9 percent in June 2018, the U.S. Bureau of Labor Statistics (BLS) reported July 31 in its quarterly Employment Cost Index. BLS projects a continuation of the salary increases at the 3% level in 2020.”
Astron Solutions’ General Conclusions
- It appears that we are continuing with an approximate 3% compensation budgeting factor moving into 2020. As such, salary increases won’t be the primary driver of employee retention and motivation.
- 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. Clients have been reporting concerns over the “domino effect” of minimum wage adjustments on the entire pay scale and the need to budget for compression related corrections.
- Speaking of minimum wage related topics, organizations also need to be aware of potential federal and approved state minimum pay levels for overtime exemptions, and the potential budgetary impact of making additional adjustments in exempt / non-exempt classifications. Recently the Department of Labor has proposed the following changes to minimum salary levels for FLSA exemptions (www.dol.gov):
- Raise the salary threshold for exempt classification from $455 per week ($23,660 per year) to $679 per week ($35,308 per year);
- Allow employers to include “certain nondiscretionary bonuses and incentive payments” as up to 10% of the new $679 per week salary threshold; and
- Raise the total annual compensation requirement for highly compensated employees – which are subject to a minimal duties test – from $100,000 to $147,414.
- To successfully attract, retain, and motivate talent, organizations must heed these observations from WorldatWork (www.worldatwork.org):
“Companies need to recognize that while the salary budget increases are relatively modest, in the current work landscape salaries are just one component in a compensation package,” said Alison Avalos, director at WorldatWork. “Other recent research indicates that beyond salary, total rewards benefits that provide a great work experience and a great life experience are valued highly by employees, and companies are addressing these needs to remain competitive.”
Astron Solutions agrees that a “total rewards” view should be a major focus for employers in 2020 and beyond, and is actively working with many clients to develop or refine their total rewards approaches.
Please stay tuned for more! Our next issue of Astronology® explores trends in incentive compensation in 2020.
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