Employee Retention and Turnover: Don't Pay Minimum Wage

   Frankly, I don't believe in paying minimum wage.

   This doesn't mean I don't believe in a minimum wage which must be paid.

   It means I don't believe in paying only minimum wage.

   Why? For two reasons:

   One, because in return for paying only minimum wage, you usually get minimum employees who are motivated to deliver minimum effort, which isn’t good for either one of you.

   I suggest that paying minimum wage typically sends employees this message on one level or another:

   "You and the work you do for us have so little value that we're going to pay you as little as we can possibly get away with by law."

   That's not exactly a good premise on which to attract capable, hard-working employees with the intent of keeping them. And people often associate their self worth with the jobs they do, and what they pay.

   Yes, I realize every little increase costs businesses, especially small ones, plenty.  When I signed payroll checks for a small family business several years ago, I was amazed at the amounts we paid in taxes and FICA after small pay increases.

   Two, if you have employees making minimum wage, studies have shown they may leave for another employer for as little as a 5% increase in their hourly wage!

   Let's do some math.

   The current federal minimum hourly wage for covered nonexempt employees is $7.25. A 5% increase amounts to just over 36 cents per hour, $14.40 per week, $61.92 per month, and $743.04 more in annual wages.

   Adding a 7.65% FICA cost of $568.43, the employer now pays $1,311.47 more ($743.04 plus $568.43).

   However, assuming this is a reasonably good employee and they leave, it costs at least $3,500.00 to replace them after all employee turnover costs have been calculated, according to one study reported by SHRM, the Society for Human Resource Management. (This was the lowest estimate of 17 reports).

   The difference between these two amounts ($3,500.00-1,311.47) is $2,188.53 in potential turnover savings. Admittedly, it would be important to know that low pay is why employees are leaving, and to be able to correlate increased wages with increased retention.

   Nonetheless, the validity of this concept, and its potential savings, is worth reviewing for your organization.

   Some employers hold on to the belief that paying as little as possible and replacing employees often costs them less than paying a bit more, lowering  turnover costs, and keeping good employees longer.

   If you do the math, this often isn't true.

   Employers usually save money by paying higher wages or making other workplace improvements versus continuing to spend large amounts of money on employee turnover.

   Your employee retention strategies need to help your organization retain valuable employees and expertise; deliver services and products; improve customer retention; and increase sales and bottom line profit.

    If it takes paying more in wages to do so, then do it.

   You usually get what you pay for when purchasing products and services, right? 

   The same is usually true when it comes to employees.

   Employers can choose to pay higher employee turnover costs, or they can choose to pay higher wages, but either way, the cost is there, and they pay.

   Retaining valuable employees pays; employee turnover costs money while returning nothing of value.

   Don’t make the mistake of blindly paying only minimum wage.