Across the country, people are seeing a minimum wage increase. While the current federal minimum wage remains at $7.25 per hour, many states are pushing their wages upward.
For example, both California and New York have plans that gradually increase their minimum wages to $15 per hour. And, Oregon is not too far behind. Its minimum wage plan will gradually increase wages to $14.75 per hour within Portland’s urban growth area.
The impact of minimum wage increases
Let’s say you’re an employer in New York with five employees. You have an employee who works 40 hours per week and earns the 2021 minimum wage of $12.50 per hour. That employee would earn $26,000 per year before deductions if they didn’t work overtime ($12.50 x 40 hours per week x 52 weeks per year).
What are gross wages for that employee after the minimum wage is increased to $15 per hour? The employee would now earn $31,200 per year ($15 x 40 hours per week x 52 weeks per year). That is a 20% increase from the employee’s original wages.
Keep in mind, the cost of hiring an employee includes more than wages. When an employee’s wages increase, so does the employer portion of payroll taxes. Also, many states, including New York, are gradually phasing in their minimum wages, so the increase in your payroll expenses will be spread out over several years, which will help reduce the impact.
What do small business owners think of a rising minimum wage?
In a 2015 Small Business Majority poll, 60% of small business owners favored raising the federal minimum wage to $12 per hour while 35% opposed.
A CNNMoney-Manta survey showed that 43% of small business owners support increasing the federal minimum wage to $10.10 per hour, but 49% opposed.
And, a 2013 Wells Fargo/Gallup Small Business Index found that 47% of small business owners approve of increasing the minimum wage to $9.50 per hour, and 50% disapproved.
As you can see, small business owners are split when it comes to a rising minimum wage.
Business owners in favor of increases say current minimum wages are not livable wages. Some also argue that if people have more money, they’ll have more to spend at local businesses.
Business owners that oppose raising minimum wages say they will have to increase their prices, lay off workers, or go out of business.
6 things to do to survive a minimum wage increase
There are some things you can do to give your business a fighting chance.
1. Evaluate your expenses
Take a hard look at how you spend money. What are business expenses you can cut or reduce? Can you rearrange your budget so you can spend more on payroll?
2. Get better at scheduling
Look for ways to better schedule employees that will reduce your payroll costs.
One option you have is to close your business during traditionally slow hours. When the business is closed, you aren’t paying employees to be there.
You can also define overtime limits for your employees. When employees work overtime, you must pay them one and a half times their regular hourly wages. If an employee is earning $15 per hour, the overtime hourly wage is $22.50. Overtime hours can make your payroll costs quickly add up.
You could rearrange the hours your employees work. There might be a better staffing schedule that will cut down on your payroll expenses.
3. Minimize your staff
Reducing your staff is tough to do. Laying off workers is not ideal, but it might be necessary. Downsizing might also mean you have to work more hours to fill empty staff spots.
You might not need to completely cut any employees. You could ask some full-time employees to become part-time employees.
4. Find a cheaper way to do payroll
You can reduce your payroll costs by finding a less expensive way to run payroll. Full-service payroll software can automate your payroll process. Software companies, like Patriot, offer payroll services that will collect, file, and remit payroll taxes for you, so you don’t have to hire an accountant. Best of all, online payroll software is an inexpensive option for running payroll.
5. Simplify your business
You might be able to limit your business expenses by reducing the number of goods or services you provide. If you have slow-moving goods or services, you could get rid of them so you can focus on products that turn more revenue.
6. Increase prices
To make up for the money you lose to payroll, you can increase the prices of your goods or services. You do need to be careful while determining how to price a product. If you increase your prices too much, customers will have less desire to make purchases at your business.
Do you want cheap payroll software that can reduce the cost of running payroll? Patriot’s software comes with free setup, support, and direct deposit. Sign up for a free trial!