Imagine being employed full-time and working hard to turn in an outstanding performance. Yet, despite being gainfully employed, providing food and paying rent is a constant struggle. A recent study by Bloomberg found that 44 percent of American workers are low-wage earners who do not earn enough to cover basic living expenses.
Living wage versus minimum wage
A living wage refers to the income necessary for individuals or families to afford adequate shelter, food, and other necessities. In theory, it is the minimum amount that a worker must earn to support a satisfactory standard of living and also minimize the possibility of sliding into the cycle of poverty. This income varies by geographic location. Economists suggest that rent or mortgage should not exceed 30% of income when calculating a living wage. For example, a living wage in Queens, New York City, where the average rent for a one-bedroom apartment is $2,500 per month, will be much higher than in Mobile, Alabama, where a one-bedroom unit rents for approximately $1,000.
On the other hand, the minimum wage is the minimum amount of remuneration an employer is required to pay an employee for work performed during a specific period of time. The federal minimum wage for covered nonexempt employees is currently $7.25 per hour, but state minimum wage laws may exceed the federal rate. In those cases, the higher state wage prevails. The minimum wage does not guarantee a living wage, and workers who earn the federal minimum wage and many low-wage workers live below the poverty line.
Supporting a living wage
The rationale for providing a living wage is that no one who works for a living should be living in poverty. When employers can pay the threshold income, they can offer employees self-sufficiency and alleviate some of the financial insecurity that low-wage workers contend with. Closing the gap requires employers to think creatively.
According to Pamela Stevenson, CVPM, “A living wage is a win-win. It allows the worker to maintain an adequate standard of living and even thrive. Employers benefit because their employees are more committed and productive and more likely to stay with the company.” She maintains that ensuring that the lowest paid staff members are brought up to a sustainable salary can ultimately positively impact the entire practice. The changes initiated to support the initial salary increase can improve business and increase revenues, which will eventually benefit all employees.
As a first step, Stevenson recommends that practices interested in learning more about providing a living wage begin by consulting the MIT Living Wage Calculator, a tool that was developed to help employers understand the local wage rate that allows employees to meet minimum living standards. This provides employers with baseline information.
But each hospital or practice has a unique demographic mix that should be considered. For example, are the highest number of employees single with one dependent? If so, employers should find the income that comports with the practice’s demographic and target that salary.
Stevenson cautions that planning to adopt a living wage is a process that could take several years to implement. If reaching a living wage requires a 15-20% increase from the current wage to the desired wage, there needs to be a strategy in place to identify where the revenue will come from to adjust wages.
“A strategy is essential because a clear action plan will allow the practice to consider alternative approaches to increasing revenue that don’t involve job cuts,” she said. Options include increasing volume, capturing missed charges, improving efficiency, inventory management, and eliminating overtime.
Furthermore, she recommends involving staff in the process because staff will be responsible for some of these initiatives. If they understand the long-term impact, they are more likely to help make the effort a success. Providing incentives can also capture employee interest and engagement in the process
“Employees need to see the big picture so that they can do their part to make a living wage a reality,” advises Stevenson.
To facilitate efforts, Stevenson recommends that employers explore living wage certification, which recognizes employers who pay workers a living wage. Certification requires employers to apply. After the application is processed, the employer is guided through the process. Certification sets employers apart and acknowledges that they value their employees.
Like any complex topic, starting the living wage discussion opens a host of issues that can range from equality issues arising from adjustments made to the lowest-paid employees’ salaries and the impact on staff to how to address factors such as student loans and health insurance that consume large portions of a worker’s budget and increase the income necessary to maintain their standard of living.
More about this topic is covered in the recorded webinar, Charting a Path to a Living Wage for all Employees, derived from the VHMA/PVU Management Essentials – Finance Program found on the VHMA website.