The scheduled increase of the minimum wage in Hawaii to $14 per hour on January 1, 2024, will likely affect many employers. How employers address this increase may have unforeseen and unintended consequences in other areas, including pay transparency, compensation, employee engagement, and more. Below are some of the key danger zones to watch.

Payroll

• Hawaii law requires employers to provide employees with written notice in advance of any pay rate changes. Ensure employees are provided with proper notice before the change takes effect.
• Even if employees are currently making $14/hour or more, watch out for expenses or other deductions that may bring the employee's pay below the new minimum wage.
• For employees whose pay rates change, remember to adjust any withholding for child support orders or other garnishments that are based on a percentage of "disposable earnings."
• If payroll is outsourced, confirm with the provider that they are complying with all of the changes that you may be implementing.

Compensation and Benefits

• Make sure to budget for additional compensation and benefits costs that may result from increasing wages to meet the new minimum wage and any other related adjustments.
• Consider the potential pay compression that may occur due to the minimum wage increase. Pay compression occurs when new, less-experienced employees make close to, the same as, or in some cases more than longer-tenured employees. This can lead to low morale, resentment from tenured employees, and, ultimately, turnover. Take steps to manage and budget for pay compression.
• Take the opportunity to review how your updated compensation structure fits into your overall total rewards strategy.

Pay Equity and Transparency

• Evaluate the impact of any pay adjustments from an equity standpoint. Make sure any differences can be justified by a non-discriminatory business reason. Document decisions and the rationale behind them in case of complaints or litigation.
• Keep in mind that any large-scale change to the workforce or employee compensation can have significant effects on employee morale and engagement.

Employee Engagement

• Keep a close eye on employee morale and engagement when making changes as a result of the new minimum wage, especially when pay compression cannot be avoided. Long-serving employees often worked hard to earn their current pay rate. When newer, less experienced workers start closing the gap, resentment may have a negative impact on their engagement. Employees' disengagement also can affect their coworkers, resulting in broader engagement and turnover problems.
• Try to get ahead of resentment and disengagement by addressing employees' concerns about their value to the organization. Regular conversations about career goals, objectives, and development should be part of an ongoing performance management program. Managers can emphasize the company's commitment to providing training and development opportunities and provide stretch assignments and mentorship.

Employee Communications

• Before issuing any communications, ensure that leadership is aligned with the contents and the timing.
• Prepare a communication plan that addresses timing and the delivery method. Include guidelines for supervisors and managers who will likely receive employee questions to ensure alignment and consistency in their responses.
• Communicate with all affected employees, including those who will not be getting a pay increase. This can help to build trust and transparency with those who may be impacted by pay compression.

Employers who have employees currently paid less than to slightly more than $14/hour should already be planning for how to handle the potential downstream impacts of the new minimum wage that will go into effect on January 1, 2024.