Increased Minimum Wage: Just Before You Put Yourself In A Financial Mess

By

Paulinus I. Iyika, PhD, FCA

It is no longer news that the Federal Government of Nigeria has agreed to raise the Minimum Wage to N70,000. This is a whopping 133.33% increase from the current N30,000.

The purpose of this article is not to discuss the adequacy or otherwise of this amount but to educate as many workers out there who believe they will be receiving an increased monthly salary equivalent to 133.33%.

First of all, what is minimum wage?

Strictly speaking, the minimum wage is the lowest legal hourly pay that employers can give workers. This rate varies by country, state, and sometimes even by city. It is set by governments through enacting into law to ensure a minimum standard of living for employees.

However, national minimum as it is in Nigeria requires the Federal Government to set a flat rate for all employers both public and private sectors. This is in contrast to some countries where Sub-National governments are allowed to fixed wages. In the US for example , some states have minimum wages higher than the federal government.

Back to the main issue.

I came across a formula making the round on social media which is misleading. According to the formula, everybody should expect a 133.33% increment.

X=(a*b)/c

Where :

  X =New salary (based on b)

  a=Current salary

  b=new minimum wage

  c=current minimum wage

Hence , an employee on #52,000 should expect about N121,000.

This is utterly misleading and it will be important to clarify this in order to manage expectations. Don’t begin to spend money that does not and will never exist.

For those on the lowest rung of income level, say those on GL 1 for example who earn the lowest or some persons in private sector say cleaners, etc. , the expectation is higher because they are the most hit in the economy.

However, as the grade level increases, the incremental effect reduces across board. At the end, someone earning say #300,000 will not get same percentage increment like someone at the lowest level. Applying same rate of increase will normally lead to #699,999 for someone earning #300,000 presently.

The responsibility to determine the variations across board is domiciled with the National Salaries Income and Wages Commission(NSIWC). They will carry out consequential adjustment which refers to the revisions in the salary structure across various levels of employment that follow an increase in the minimum wage. When the minimum wage is increased, it doesn't only affect the lowest-paid employees; it also necessitates adjustments for higher salary brackets to maintain wage differentials and ensure equity within the pay structure.

The consequential adjustment typically involves:

1. Review of Salary Structures: The NSIWC reviews the entire salary structure of the public and private sectors to determine how the new minimum wage affects different pay grades.

2 Maintaining Wage Relativity: Ensuring that the new minimum wage does not compress the wage structure, meaning that pay differentials between various grades and levels of employment are maintained. This helps in preserving the incentives for career progression and maintaining motivation among higher-skilled workers.

3 Incremental Adjustments: Incremental adjustments are made to the salaries of employees in different grades. These adjustments are calculated to ensure that each grade receives a proportionate increase that reflects the rise in the minimum wage.

4 Equity and Fairness:

Ensuring that the salary adjustments are fair and equitable across all employment levels. This involves making sure that the salary increases are proportionate and justified based on job responsibilities, experience, and qualifications.

5. Budget Impact Analysis: Assessing the financial implications of the salary adjustments for employers, particularly in the public sector. This includes determining how the increased wage bill will be funded and its impact on government budgets and spending.

6. Negotiations and Consultations:

Engaging with labor unions, employee representatives, and other stakeholders to negotiate and agree on the new salary scales. This helps in achieving consensus and minimizing disputes.

7. Implementation Timeline: Establishing a timeline for the implementation of the consequential adjustments. This includes setting dates for the adjustments to take effect and ensuring that all parties are aware of the changes.

9. Compliance Monitoring: The NSIWC monitors compliance with the new salary structures to ensure that employers adhere to the adjustments and that employees receive their due increases.

In summary, consequential adjustment by the NSIWC ensures that an increase in the minimum wage leads to a comprehensive revision of the entire salary structure, maintaining fairness and equity while considering the financial capabilities of employers.

Do not build castles in the air !

NB: The opinions expressed here are entirely mine and not the organization I represent. It is also aimed at educating not for advisory purposes.