On June 22, 2022, Governor Ige signed HB2510 HD2 SD1 CD1 into law as Act 114, which increases Hawaii’s minimum wage, increases the tip credit, and changes Hawaii’s earned tax credits from nonrefundable to refundable. Currently, Hawaii’s minimum wage is $10.10/hour and the tip credit is $0.75/hour.

Act 114 will increase the minimum wage and tip credit over the next several years according to the following schedule:

Employers should prepare for the minimum wage increases set forth above, and employers of unionized employees should also expect wage increase demands based on the scheduled minimum wage increases. For tipped employees in Hawaii, effective October 1, 2022, the Hawaii tip credit will be $1.00 per hour and the tip credit in Hawaii is accepted if the combined amount an employee receives from their employer in tips is $7.00 more than the applicable minimum wage. This means that if a tipped employee earns less than $19.00 per hour ($12.00 + $7.00) as their combined amount of wages and tips, then the employer may not take the full tip credit and may need to reduce the tip credit or pay the full minimum wage of $12.00 per hour. 

Employers need to also be aware of the wage compression that may be caused by the $1.90 pay increase on October 1, 2022, and the $2.00 pay increases every 2 years over the next six years. Wage compression means there is only a small difference in pay between employees regardless of their skills, experience or seniority, and it most often occurs when the minimum wage is increased by the state and a new employee is paid almost the same amount as an experienced employee for the same job. 

For example, an employee hired 5 years ago started with a salary based on the market rate at that time. Over time, the employee earned pay raises, in line with the company’s pay policy. In a situation of wage compression, an incoming employee may be offered a starting salary close to what the senior employee is currently earning because the mandated wage increases and/or market wages outpace the company’s salary-increase practices. Be especially careful to avoid wage inversion, where a new employee is earning more than senior, more experienced employees.

Wage compression hurts employee morale when a co-worker with less experience or less tenure is earning close to or as much as a more senior or experienced co-worker. It can promote a sense of unfairness at work, which may lead to an employee’s decision to leave the company, or worse yet, view the pay discrepancy as discriminatory based on race, gender, or other protected class, and file legal action.  

Here's what you can do to avoid employee claims of wage compression going forward. Keep track of the market rate across your organization, and match the market rate.  HR departments need compensation plans that include keeping track of the fair market value for positions across the organization.  Competitive base pay is essential to attract and retain the talent needed to help an organization thrive.  Employee job satisfaction and engagement begins with a competitive pay structure, because without a competitive base salary, all other benefits have less of an impact towards an employee's decision to stay or leave an organization.

HEC is a resource for both local (with neighbor island demographics provided when available) and national wage information.  HEC collects pay and benefit information directly from the HR teams at participating organizations, which results in current and reliable data.  Published survey results are shared with all participating members.  All which may be utilized with the enhancement and/or development of compensation programs and structures. 

Compensation is a specialized area and additional services HEC can assist members with include:

• Provide a competitive assessment of jobs against the market and enhance/develop salary structures which are aligned with your organization's philosophy and strategy;
• Be a sounding board and resource to compensation teams where tasked with tactical and/or strategic change initiatives; and share insights, resources and informal coaching for ongoing compensation skills development; and
• Conduct and publish comprehensive, reliable, and useful custom surveys on pay equity for Hawaii-based participant organizations. 

HEC members may contact their HR Consultant or call our hotline at 808-836-1511 with questions or for more information about our compensation services.