Does Your Outsourcing Contract Effectively Address Minimum Wage Increases?

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Does Your Outsourcing Contract Effectively Address Minimum Wage Increases?

More than a dozen states plus the District of Columbia hiked the minimum wage for 2017. If you’re outsourcing o ce services, customer service or any other areas, the change can profoundly in uence your organization’s daily operations.

Frankly, mishandling rising minimum wage can wreak havoc. Let’s look at one example from my own backyard: Washington, D.C.

While the federal minimum wage has been $7.25 an hour since 2009, in D.C. it’s scheduled to rise to $15 an hour by 2020. Don’t get too comfortable if your organization is outside the beltway. We see $1-a-year minimum wage increases happening in other high-cost areas, too.

Let’s say our hypothetical Washington, D.C. outsourced mailroom has rst-year associates working for $12 an hour. Their supervisor earns $14 an hour. Each year, the minimum wage is set to rise $1. By year two, the associate will be at $13 an hour. By year three, the associate and the supervisor will both be making similar wages.

If the vendor doesn’t proactively budget then they won’t be able to afford to raise the supervisor’s salary. What happens? In most cases, the supervisor ends up doing a more stressful, complicated job for a similar wage as a first-year associate. The challenge then becomes keeping supervisors motivated, appreciated and fairly compensated for their management duties. Otherwise, it’s likely morale, service levels and employee retention will decline—not what you signed up for!

Does your contract stipulate how minimum wage increases are managed by your outsourcing vendor? Is the vendor able to draw and retain talent while paying minimum wage?

Overtime Rule Uncertainty

I’ll throw some more uncertainty into the mix: We don’t know what’s going to happen with the U.S. Department of Labor’s overtime rule for white-collar employees. Will the Trump administration overturn the Obama administration’s rule requiring salaried executive, administrative and professional employees who earn less than $913 a week ($47,476 per year) to qualify for overtime pay? Will we go back to the prior $455 per week ($23,660 per year) limit? Land somewhere in the middle?

Minimum Wage in Outsourced Services

Sometimes outsourcing contracts may address minimum wage increases by having the service provider raise the rate the client pays. Those provisions can be narrowly drafted to apply to only the lowest-paid employees or broad enough to include a pay bump for all employees.

No matter what happens, it’s vital to be proactive and collaboratively discuss how minimum wage and overtime changes will be managed. These terms need to be incorporated into your agreement so you understand who is going to cover any mandated wage cost increases.

If you’d like to learn more about how to strategically structure outsourcing agreements so your on-site team is effectively compensated while maintaining a competitively priced contract, please do not hesitate to contact me at


Marcelo Espinosa

MARCELO ESPINOSA has over 20 years of experience establishing strong customer partnerships through the development, implementation and management of outsourced IT, facilities management and office service solutions.