Arkansas House of Representatives voted Wednesday to send to Gov. Sarah Huckabee Sanders legislation that would authorize state employees to receive “a market adjustment” of up to 3% of the employee’s base salary in the fiscal year starting July 1.

The legislation also would increase the minimum salary for state employees to $32,405 a year, raise the maximum salary range for all pay grades by 10%, and authorize new incentives for future recruits and current employees who go above and beyond, either through a lump-sum payment or through extra hours of paid leave.

The House of Representatives voted 96-0 to approve Senate Bill 77 by Sen. Breanne Davis, R-Russellville., with state Rep. Austin McCollum, R-Bentonville, voting present.

The bill would implement Sanders’ temporary pay plan for executive branch employees.

Under the bill, a state employee under the Uniform Classification and Compensation Act may receive “a market adjustment” to his or her base salary that may not exceed 3% of the employee’s base salary, and the employee shall not receive more than one market adjustment. This part of the bill would become effective on or after July 1, 2024, and expire June 30, 2025.

The estimated annual cost of a 3% labor market adjustment, plus the cost of collapsing General Salaries 1 through General Salaries 5 pay grades, is $42.4 million from all funding sources, including $19.3 million in state general revenue, said Alex Johnston, chief of staff of the state Department of Transformation and Shared Services. The GS1 through GS5 salary range would be from $32,405 through $51,686 under the bill.

SB77 would allow state agencies to provide a special compensation award to a state employee to recognize the employee’s outstanding performance in completing a significant project or job assignment or completing a major milestone, or due to the assignment of temporary job responsibilities for a period not exceeding six months that are beyond the scope of work typically performed by the employee and have produced measurable results that enhance the mission and goals of the state agency.

A special compensa

tion award may consist of a lump-sum bonus payment of up to $5,000 or up to 40 hours of incentive leave under SB77.

A state employee may not receive more than $10,000 in lump-sum bonus payments in a biennium under the measure.

Under the bill, a state agency wishing to provide special compensation awards to employees would be required to prepare a written plan for administering the awards and would be required to get the approval of the Office of Personnel Management and either the Joint Budget Committee or the Legislative Council.

Then, a state agency may submit a request for special compensation awards to the Office of Personnel Management for approval.

Under SB77, a state agency may offer a recruitment incentive in connection with an offer of employment to a prospective employee to assist with recruitment efforts. The recruitment incentive may consist of a bonus payment of up to $5,000 or up to 40 hours in incentive leave.

A person employed by the executive branch at the time of the offer of employment is not eligible for a recruitment incentive under the bill.

A person receiving a recruitment incentive would be required to commit to a required period of employment with the state agency under the legislation.

A state agency wishing to provide a recruitment incentive to prospective employees would be required to prepare a written plan for administering the incentives and get the approval of the Office of Personnel Management and either the Joint Budget Committee or the Legislative Council under the bill.

Then, a state agency may submit a request for a recruitment incentive to the Office of Personnel Management for approval.

Both the special compensation awards and recruitment incentives will be required to be paid out of state agencies’ existing budgets and not the Performance Fund under SB77.

State officials don’t have any estimate on the projected use of special compensation awards and recruitment incentives, Johnston said.

According to Kay Barnhill, director of the state Office of Personnel Management, state employees also will be eligible for a merit pay raise in July.

State employees who meet or exceed expectations during their performance evaluation will be eligible for merit pay raises, and the governor will decide on the percentage of merit pay raises near the end of fiscal 2024 that ends June 30, she said.

The state’s executive branch has 22,509 employees with an average salary of $50,762.45, state officials said last month.

In March 2023, Sanders announced she wouldn’t support a broad-based pay plan increase in the state government’s employee classification and compensation bill with an $80 million price tag that doesn’t consider the strategic needs in education, public safety, health care and corrections.

In February, the Legislative Council signed off on the state Department of Transformation and Shared Service’s consulting contract with McKinsey & Co. for up to $5.5 million to help the state’s 15 executive branch agencies become more efficient and improve services.

The state Department of Transformation and Shared Services is working with McKinsey & Co. to develop a permanent state employee pay plan overhaul for state lawmakers to consider during the 2025 regular session.

State government last overhauled its pay plan in 2017 under then-Republican Gov. Asa Hutchinson.

That plan was projected to cover 25,000 full-time state workers and cost about $57 million to implement in fiscal 2018, including about $24 million from general revenue, with the remainder coming from other revenue sources.