Practical Strategies in Response to Tight Labor Market
Most of our clients continue to experience substantial challenges finding and retaining enough workers to meet their customers’ expectations. Last fall, the Department of Labor reported the number of job vacancies exceeded new hires by 4.3 million, the largest disparity ever. From bus drivers to restaurant staff to hospital workers, nearly every industry is facing a severe labor shortage.
This phenomenon, called the Great Resignation by many, seems to be gaining steam. In November 2021 in the U.S., the number of people leaving their jobs reached a record high of 4.5 million, the majority of whom were in the middle to lower wage brackets. Employers are responding to the Great Resignation and this severe labor shortage in a couple of ways. First, they are investing more money into their employees. Second, they are expanding the universe of potential candidates.
Starting pay is soaring. For the first time in decades, the American worker is finally in charge when it comes to talking money in the workplace. The de facto minimum wage for most industries is $15.00 per hour, and even higher for others.
Relatedly, signing bonuses are becoming the norm, even for entry level jobs. Employers who offer signing bonuses must consider several important issues. Should the bonus be paid all up front, or over time? Payment up front will attract more workers but paying the signing bonus over time will better incentivize them to stay. Any signing bonus should be conditioned on the employee remaining employed for a designated timeframe. When the bonus is paid, employers should obtain the employee’s signed agreement to repay the bonus (all or a portion) if he or she does not remain employed for the designated period of time, together with the employee’s signed consent that the employer may deduct any repayment amounts owed from the employee’s final paycheck.
Remember, as well, that the amount of the signing bonus will likely need to be included when determining the employee’s “regular rate of pay” for overtime compensation purposes.
Another financial incentive to encourage employees to become employed and stay employed is a retention bonus. Retention bonuses are generally safer than signing bonuses because they are paid after the bonus has been earned instead of up front. Most retention bonuses require employees to remain employed for six months or a year and are only paid after the employee remains employed for the designated period. Remember, retention bonuses, like signing bonuses, may affect an employee’s “regular rate of pay” for overtime pay purposes.
Some employers are offering creative employee benefits to attract workers. These benefits range from transportation to/from work and payment of child care expenses to money for college tuition. Many of these employee benefits will have tax implications to the employee and may need to be characterized as taxable income. Fringe benefits are normally included in an employee’s gross income and are subject to income tax withholding. As with the other financial incentives we have discussed, employers offering these enhanced employee benefits should condition receipt of the benefit on continued employment for a specific period of time thereafter and require the employee to repay a portion or all cost associated with that benefit if he or she does not remain employed for the required time after receiving the benefit.
Another strategy to attract workers is to cast a wider net and broaden the pool of candidates. Many employers are reevaluating what is really required for each job. For example, can education requirements be lowered or eliminated? What about pre-employment drug testing? Some employers are no longer testing for marijuana use, which is now lawful under many state laws. Other employers are limiting or eliminating criminal background checks, at least for some positions. Some industries are legally required to conduct drug tests and screen candidates for criminal convictions, so make sure to consult with your employment lawyer before making any changes to the pre-employment hiring process.
Employers may also find additional qualified candidates by looking to groups that have been historically underrepresented in the workforce, including minorities and persons with disabilities.
Retain recruiters that have expertise in hiring from diverse communities. Develop relationships with historically black colleges and universities and be intentional about recruiting opportunities there. Advertise for candidates in publications focused on various minority groups. Remember, however, at all times an employer’s goal should be to hire the best qualified candidate, regardless of race or any other protected characteristics.
Finally, the best way to attract and retain workers is to treat them well. Studies continue to show employees who feel respected and enjoy coming to work every day are the best workers.
Tony Comden is an employment law attorney in Grand Rapids, Michigan. He may be reached at firstname.lastname@example.org.