How Might a Minimum Wage Hike Affect Your Small Business?

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8 Questions to Ask Yourself Before Panicking


While the Senate vote effectively killed President Obama’s plan to raise the Federal Minimum wage to $10.10 by 2016, don’t think that’s the last we’ll hear of it. While nearly 75 percent of Americans support a minimum wage hike, a recent CNN Money survey found only 43 percent of small business owners did. At first glance, it seems like Wal-Mart and Gap could absorb this kind of expense far easier than your business could. But before you start planning who you’re going to lay off first, here are eight things you should take into consideration when figuring out how much an increase might really cost.

    • Is Your Industry Really Affected?



While some restaurants and retailers may have a legitimate reason to freak out, many industries - like construction and auto repair - won’t be much affected because employees in those fields already make well above the minimum wage. According to findthedata.org, the only people earning under $10.50 an hour in the “construction” field are workers who assemble traveling amusement park rides. The auto maintenance field also pays higher, as even the average post-repair cleaner already makes $11.20.

    • Where is Your Business?



Twenty states and the District of Columbia already have minimum wages higher than the federal minimum. And, studies have shown that in metropolitan areas where the cost of living is higher, those earning in the bottom 10 percent of hourly wages were already making close to $10 an hour, if not more. Much like with dependency on industry, you might already be paying - or need to pay - more than the wage hike would mandate.

    • How Much More Will You Pay in Taxes?



If right now you’re feverishly trying to calculate how much a $2-an-hour raise might cost you, don’t forget to factor in another 8.65 percent for Medicare and Social Security, plus whatever your area charges for disability, workers comp, and unemployment. In a CNN.com article, one daycare owner in New Jersey estimated an almost-11 percent increase in his total payroll expenditures when his state raised the wage from $7.25 to $8.25 in January.

    • What Other Costs Are Likely to Go Up?



That same CNN.com article also quoted a Burger King franchise owner in Wisconsin who feared his ancillary costs like snow plowing, CO2 delivery, equipment repairs and baked goods might also go up. And while that trickle-down fear is a valid one, you must first consider how the wage hike affects your vendors. For instance, transportation workers already earn over $10 an hour on average, as do heavy equipment repair people and delivery drivers. However if you depend on vendors who pay minimum wage - like a private cleaning service for example - then these costs may go up.

    • What are the Employment Upsides?



Worker turnover is expensive. And when workers are paid more, they are less likely to leave. A 2013 study found that counties with higher minimum wages had far less turnover and, thus, more growth. Similarly, a 2011 study from Georgia State University found that states with higher minimum wages saw larger small business growth, especially in retail. And an earlier 2006 study from the Fiscal Policy Institute found the same result. The bottom line is that if you have happier workers, making more (and spending more) you may end up making more than you had previously.

    • Who Else Will Want a Raise?



When the low man on the totem pole is making more, everyone else will want in too. The Economic Policy Institute study that showed 27.8 million Americans getting pay raises by 2016, had only 16.7 million of those as minimum wage workers. The rest would be people in higher wage brackets receiving coinciding raises, something you will likely need to budget for or risk losing longer-standing and more-skilled employees.

    • How Else Can you Control Costs?



The Congressional Budget Office estimated that 500,000 to 1 million jobs would be cut as a result of a minimum wage increase. But there are other ways to cut costs that won’t involve people losing their jobs. In the 2011 Georgia State study, only 8 percent of managers cited cutting jobs as the best way to cut costs. The most popular: Increasing performance standards. They also cited things like adjusting works schedules, hiring more part-time vs. full time workers and reducing food waste and energy expenditures.

    • How Much Will You Really Need to Raise Prices?



The most obvious solution to increased labor cost is to raise prices. The inherent fear, though, is that you might lose some business as a result. But first, think about how much you’ll actually need to raise. In an Examiner.com article, one Reno coffee shop owner calculated that an increase to $10.10 would only cause him to raise his average price 5 cents a cup. A hike most people buying coffee at $4-5 would barely even notice.

Image courtesy of nongpimmy / FreeDigitalPhotos.net


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