Will increasing pay be enough to bring back the hourly workers?

August 23, 2021

Employers reveal what they are doing to attract and retain hourly talent

Whether it's an hourly talent shortage or a crisis, the fact remains that employers are struggling to find and keep hourly workers. Several large organizations have already increased starting pay or their internal minimum wage, or both, in an attempt to attract and retain employees. So far though, increasing pay to attract hourly workers doesn't seem to be effective. What else are employers doing to get the much-needed hourly workers?

Pay is still the foundation

While there is a lot of discussion about looming increases in either federal or state minimum wage, turns out that's not the obstacle most employers are struggling to overcome. Although the current federal minimum wage remains at $7.25, more than half of the states or municipalities have a minimum wage already above that. In Mercer's 2021 US Compensation Planning Survey, special July edition: The Hourly Workforce, 95% of the participants reported paying above the federal minimum wage and 77% reported paying above the state or municipal minimum wage. Although some regional variation exists, the majority of respondents indicated that their internal minimum wage is between $12 and $19.99 per hour. As you can see in the chart below, the West Coast tends to sit toward the upper end of that range, while the Southeast and South Central states set their internal minimum at the lower end.

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Interestingly, some of the industry standouts are Chemicals and Energy, where more employers indicated their internal minimum was in the range of $20/hour, and Healthcare, which reported having a minimum wage of $12.00 - $14.99 per hour more often than other industry. Retail and Wholesale and Logistics also stood out for having a significant percentage of employers reporting their internal minimum wage ranged between $10 and $11.99 per hour. As I'm sure you're aware, both of those industry are experiencing real difficulty in attracting and retaining employees.

Some employers have raised starting hourly rates since March 2021 in an effort to attract more candidates. Of the survey respondents, 61% either have increased some or all starting rates for low-skilled workers or are considering doing so in 2021.

The majority of companies in Chemicals and Energy have not increased the internal minimum wage, but then again, they tended to have starting rates much higher than those of other industries.

For those industries that had lower starting rates — Retail and Healthcare — what are they doing? For the most part, they have increased some or all of the starting rates of pay for their positions, typically by 50 cents to two dollars per hour, which falls right in line with the “all industry practice.” Unfortunately, that could mean that the increase in starting pay for hourly employees in these industries that have been so badly hit by the talent crisis still leaves them several dollars an hour behind other employers who are recruiting, and competing, for the same low-skilled workers

For skilled hourly workers, the story is much the same, although slightly fewer employers report increasing some or all starting rates of pay or that they are considering it in 2021.

Low-skilled workers are defined as those whose jobs predominantly consist of repetitive tasks, not requiring specific education.

Skilled worker is one who has a special skill, training, knowledge, and (usually acquired) ability in their work.

Complete definition can be found in the 2021 US CPS July Edition

What other cash incentives are employers providing?

If higher wages aren't bringing hourly employees back to work, given that the talent crisis is continuing, what else can employers do? Some are offering other cash incentives.

In the past, we only talked of sign-on bonuses and retention bonuses for salaried, even managerial or "key" positions. But if you think about it, a whole workforce of hourly jobs that are hard to fill really makes each of them key positions. Therefore, employers have turned to methods typically used at higher levels to try to attract and retain these employees.

For both low-skilled and skilled positions, more than 40% of employers indicate that they are providing sign-on bonuses for at least some jobs or are considering it for 2021.

How are they protecting their most valuable resource — the employees they currently have? In addition to increasing the starting pay in jobs for internal candidates, some have started offering retention bonuses or are considering doing so this year. Another action companies are taking is to increase the shift premium paid to those working an “undesirable shift.” However, both retention bonuses and increasing shift premiums are much less common than hourly wage increases.

Beyond pay

In today's job-seeker friendly labor market, hourly employees are looking for more than just an increase in pay. From their experience during the pandemic, many are reevaluating how they spend their time and what's important to them in a job. In many cases, going back to working in the same capacity just is not desirable. They've come to appreciate flexibility and time with family as well as the need for a supportive relationship from their employer.

Over the summer, Mercer conducted a digital focus group with over 600 participants in the US to dig further into the hourly talent crisis. When asked what was most important to attract employees, the majority cited pay and incentives, underscoring the need to have accurate hourly pay data and adjust wages accordingly. Beyond pay, this group of employers also provided insight into what other things they are doing to attract and retain hourly employees.

The employers indicated that they are providing retirement account contributions, healthcare benefits, as well as disability and life insurance. In addition, they commented that being able to provide immediate eligibility and discounted healthcare along with student loan assistance would make attracting employees even easier.

Once unheard of, employers are now offering paid time off for hourly employees. In a time where employees need flexibility more than ever, this is a real benefit. However, many employers are still figuring out how to provide flexible working hours while still meeting the needs of their customers.

Among other things, employers also indicated that being able to provide back-up childcare, time off by closing the doors on national holidays, and employee appreciation programs would help to pique the interest of candidates.

A lot of change is needed

As you can see, the whole relationship between the employer and hourly employee is changing and will continue to change. In a job-seeker friendly labor market, like the one we're experiencing today and for the foreseeable future, increasing pay is the minimum action that employers must take. In order to successfully attract and retain an adequate workforce, employers need to provide benefits and perks, previously reserved for the salaried employee, to their entire workforce.

Hourly employees are demanding that they be given a new value proposition, one that shows them how much they are valued. Flexibility, health benefits, and other offerings to make both their work life and home life more manageable are now an expectation.

Looking for more information about how to attract and retain hourly employees? We've got more information to help you on your journey. Give us a call at 866-605-1031 or email at surveys@mercer.com.

hourly pay