Tips on preparing for a minimum wage increase
Many restaurant owners may be wondering how, exactly, they can fit a minimum wage increase onto their balance sheets following President Obama's call Tuesday to raise the wage to $10.10, from the current $7.25.
Recent legislation in 13 states has been introduced to raise the minimum wage, and various cities across the country have also jumped on board.
According to payroll services provider SurePayroll, if the federal minimum wage increases, 31 states that do not have a higher minimum wage would be mandated to a new federal standard. Small business owners can take steps to mitigate the impact.
"Whether you're in favor or against minimum wage hikes, few would argue that small business owners, in comparison to large corporations, often face greater challenges to absorb increased costs to run their businesses," said SurePayroll CEO and president Michael Alter, in a news release. "Margins, pricing, cash flow and credit access already loom in the background for small business owners. As a result, increased regulatory pressures may place a disproportionate burden on these businesses."
According to the National Federation of Independent Businesses, the small-business sector has historically created two-thirds of net new private jobs in the U.S. economy, however, this sector has been slow to recover in recently due, in part, to a series of government policies.
Historically, economists have been divided on the impact of raising the minimum wage on businesses, and consequently on the minimum wage job market. A recent University of Chicago poll of economists found that it will be much more difficult for people to find these jobs, suggesting a reduction in employee hiring or hours. On the other hand, consumer spending and employee retention efforts may positively impact small businesses and minimum-wage employees.
"In the end, the full impact to small business owners remains to be seen within the constraints of our new regulatory environment,' said Alter. "However, similar to other challenges, it's all in how you prepare."
He recommends the following six steps to prepare for potential negative impact:
- Understand profit margins, projections and business requirements to ensure profitability.
- Determine permanent hiring vs. contracting decisions for staffing needs.
- Make good hiring decisions – mistakes can be costly since training/onboarding new employees is a considerable investment.
- Invest in employees – turnover decreases productivity and increases business costs.
- Be sure to employ time and cost saving tools to standardize back office tasks. Consider outsourcing to easy affordable services like SurePayroll that allow you to focus on growing business not administrative functions.
- Research competition and adjust pricing accordingly.
Read more about operations management.