Business.com: Are You Paying a Living Wage?

By Adam Uzialko
Business.com, Feb 27, 2018

Don't just think of paying more than minimum wage as an expense. It can be an investment in the overall health of your business.

The federal minimum wage, and those mandated by states and localities, represents a requirement for the floor for payment that employers must offer. However, the minimum wage does not always line up with the cost of living in a given area, nor do real wages necessarily rise with productivity or profits.

Many business owners are necessarily concerned with expenses, and fear raising wages could put too much pressure on the bottom line. However, paying employees what is known as a "living wage," or one that meets the demands of the cost of living in their community, tends to produce better business outcomes and improve employee performance. ...

Calculating a living wage

What exactly is a living wage? It is a per-hour rate that each working adult in a household requires to meet the typical expenses for essential goods, like food, medical care, housing, transportation, and so on. ...

"When you're setting something like the federal minimum wage, you want to consider the averages," said Holly Sklar, CEO of Business for a Fair Minimum Wage, an advocacy group which supports gradually raising the floor. "When talking federally, it's a floor that's adequate for the country as a whole. When you're talking about an individual, or city, or a state, you look closer to home to determine what is living wage." ...

So, if a business owner wants to offer a living wage to its employees, how could they know what is their target number? The Massachusetts Institute of Technology (MIT) developed a living wage calculator that covers every county in every U.S. state. ...

Added expense or workforce investment?

Once the legally required minimum wage has been met, businesses can choose to set compensation at any rate they'd like. In general, there are two main schools of thought. Sklar and her organization believe offering a living wage (and, indeed, raising the mandated minimum wage) will yield the most positive outcomes for both individual businesses and in the economy at large, while others believe wages and compensation packages are purely a consideration of supply, demand and profitability. ...

"One of the things our business members stress is looking at the whole picture," Sklar said. "Low pay often means high turnover, and with a reduced turnover [due to higher pay], businesses often see substantial savings in recruiting and training costs. There are also savings from managers able to spend time on more productive tasks, as well as less product waste through lower error and accident rates."

Sklar added that customer service tends to be significantly better when wages are higher, resulting in a happier, more loyal customer base.

"We know that frontline employees often make the difference between repeat customers and lost business," she said. ...

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