Read More

Compensation in a Biden-Harris Administration

In a few weeks, the United States will usher in a new administration to lead our country in this unprecedented time of incredible challenge.

From a human resources perspective, we can expect that President-Elect Biden will focus his attention on key areas impacting human capital and compensation and there are likely to be significant changes. Throughout his campaign, President-Elect Biden focused his attention on two key wage and hour areas of concern: minimum wage and pay equity. What can we expect in the months to come?

Minimum Wage:

Throughout his campaign, President-Elect Biden endorsed his support for an increase to the federal minimum wage.

Currently set at $7.25, the proposal would increase this rate to $15.00 by 2026.

In 2020, 21 states increased their minimum wage rate with 8 states proposing an increase to $15.00 on or before 2025. The District of Columbia is currently the only location in the United States with a minimum wage of $15.00 as of July 1, 2020. In fact, more than 20 states currently set their minimum wage rate at the federal level of $7.25. A move to $15.00 per hour would more than double the current wage rate in many states, potentially creating a hardship for employers.

In addition to raising the federal minimum wage rate, President-Elect Biden will likely also seek an end to the sub-minimum wage for workers with disabilities. The Employment of Workers with Disabilities and Sub-minimum Wages Section 14(c) of the Fair Labor Standards Act (“FLSA”), currently permits employers, after receiving a certificate from the Wage and Hour Division, to pay special minimum wages, often far less than the federal minimum wage, to employees with disabilities.

To further strengthen their position on minimum wage, the Administration may also direct federal contracts only to those employers that pay a minimum of $15.00 per hour and offer reasonable and sustainable benefits for families. These changes may come via an Executive Order, making it more difficult to be overturn by Congress.

Additionally, while the Obama administration had passed legislation to raise the salary threshold and then the Trump administration brought that threshold back down lower to $35,568, it is not expected that the new Biden administration will have much impact on this threshold in its first year.

Pay Equity:

In a time of heightened awareness of social justice and equity, President-Elect Biden will focus some of his early attention on reducing inequities in the workplace and addressing the pay gap.

One area of focus may be reinstituting the United States’ Equal Employment Opportunity Commission’s (”EEOC”) pay-data reporting requirements under EEO-1. This reporting requires employers to disclose pay and employee data to the federal government by gender, race, and ethnicity. The data was last collected, under EEO-1 Component 2, for fiscal years 2017 and 2018 but was ended under the Trump Administration.  The intent of the reporting is to provide the federal government with employment patterns in the workplace especially as it pertains to women and minorities, as well as support the enforcement of civil rights.

It is also expected that President-Elect Biden will resurrect the Paycheck Fairness Act introduced in April 2017 to address the gender pay gap in the United States.

Currently, according to Census Bureau data from 2018, women earn approximately 82% of their male counterparts and this gap is even wider for women of color. The intent of the Act is to increase protections under the Equal Pay Act of 1963 and the FLSA. If passed as originally drafted, it would provide the following protections:

  • Require employers to demonstrate that wage differentials are not gender-based;
  • Prohibit retaliation against employees who request information about employment pay practices or if employees discuss their own wages;
  • Allow for the comparison of wages within identified geographies;
  • Impose strong penalties for violations;
  • Require the Department of Labor (“DOL”) to collect wage data; and
  • Ensure EEOC staff are properly trained to address wage disputes.

President-Elect Biden will likely receive this bill and add additional protections which would carry heavy penalties for non-compliance. The bill passed in the House but has yet to reach the Senate.

Action Steps for Employers:

  1. Review current and proposed state minimum wage rate levels. Model out potential cost to the company based on proposed annual wage increment increases. In addition, consider potential pay compression resulting from wage hikes and cost to decompress salaries for employees with additional experience, skills, training and performance, as appropriate.
  2. Review the EEOC’s pay reporting process guidelines and establish a process for collecting data for EEO-1 Component 2 in preparation for potential reinstatement of pay data reporting in 2021.
  3. Review current state pay equity legislation. Conduct a good faith pay equity audit based on current law and identify any potential pay differentials based on gender, race and ethnicity (please note many state pay equity laws currently focus on gender only). Utilizing state-specific criteria for pay differential justification (e.g., merit system, seniority system, education, experience, training relevant to the job, geographical differentials, etc.), to identify any pay inequities. Develop a plan to mitigate pay disparities including total cost and timeline for implementation. It is recommended that remediation plans be implemented within six months of pay inequity identification. Communicate pay adjustments and timing to affected employees. Pay equity audits should be filed for future reference, including documented process, work team involved in identifying comparable jobs, pay equity analysis, identified issues, and remediation plans. Ensure external legal counsel has reviewed and approved analysis so it remains privileged. Finally, conduct this audit on an annual basis.