There’s been a lot of chatter lately about increasing the federal minimum wage from $7.25 an hour to up to $15. Though the idea of a higher minimum wage is nothing new, 2021 has brought the debate back into the public discourse with various measures introduced in Congress. Should such minimum wage legislation pass, you may be wondering what an increased minimum wage could mean for you and your business.
Whether S. 53 passes or another bill comes to take its place, there’s no sign of the debate abating any time soon. Regardless of your industry, here’s what you can expect.
This Might Already Be Your Reality
Your state’s minimum wage may already be nearly $15 an hour. Numerous states, counties and cities have a minimum wage higher than the current federal minimum of $7.25. Oregon, for instance, has a standard minimum wage of $12 and is expected to have a wage of $13.50 per hour by 2022. Washington DC’s minimum wage is $15/hour. Many of these variations between states have been affected by higher costs of living in different areas and progressive voting blocks.
You May Still Be Exempt
Depending on where you live, you may still be exempt from minimum wage increases depending on your industry. Some states, such as Florida, allow for tipped employees, such as waiters, to be paid as little as $2.13/hour with the assumption that these employees can earn tips over their income. Other types of employees, such as farm workers, seasonal workers and babysitters are also often exempt from the federal or state minimum wage as of this time.
Worker Productivity Could Increase
With a higher minimum wage, depending on industry and salary-level, you may see an increase in worker productivity. As workers, especially those who are considered entry-level, cease needing to survive on two or three additional jobs, they may have more time to dedicate to a single job. Higher minimum wage increases could also allow for lower paid workers to further increase their productivity by reducing their reliance on public services, which often require workers to modify the numbers of hours they work in order to access income-based services or to even meet appointments with case workers.
For businesses able to afford an increased minimum wage, you may find that your entry-level employees benefit from being able to bring their whole selves to work. By 2026, according to the Congressional Budget Office, up to 1.5 million families could be expected to be out of poverty.
Labor Costs Will Increase
With any minimum wage increase, expect your labor costs to climb. Larger businesses will generally be able to shoulder these costs better than smaller businesses with a narrower profit margin. If you expect a minimum wage increase to occur and you expect a narrow profit margin, consider waiting to hire new employees until after your profits increase. Some businesses may be at risk of closing if they are either just starting out or cannot overcome discrepancies between their profits and labor cost increases.
Some businesses may even opt to close positions in order to save on labor costs.
You May Experience a “Ripple Effect”
As entry-level employees begin earning $15 an hour or more, it’s likely that mid-level employees may desire or demand wage increases, especially if their current income is close to that of an entry-level employee.
Benefits May Decrease
To combat potential increases in labor, some companies may opt to decrease the benefits that they offer employees. If you are a B2B company, expect some clients to reduce or cancel their contracts.
However, decreased benefits may increase employee turnover and necessitate hiring replacements, which could, in the end, be more costly to the employer than simply shouldering increases in labor costs. See our section on ‘Employee Turnover’ for more information.
More Money in Your Economy
As employees now have more money in their hand, they’ll generally be more likely to put more money back into the economy. While this may not necessarily translate into higher profits for your company, especially if you do not sell consumer products, your local economy could potentially experience a boom in revenues, pending on if businesses are able to shoulder increased labor-costs and other market factors.
Towns, however, that depend on industries that generally experience low profit margins, such as hospitality or food service, could experience some difficulties if businesses find they cannot withstand rising minimum wages. Expect some towns and industries to face some challenges in adjusting to a new minimum wage, even if these challenges are only temporary.
Employee turnover could be affected in a variety of ways: while entry-level employees may be less likely to leave your company now that they are able to sustain themselves on their wages, other employees who feel that they are not being properly compensated for the work they are performing may be at risk for leaving their position. Employees who previously worked multiple jobs to support themselves and their families may choose to leave a former position in favor of staying with one position.
It is critical to evaluate the value that you are providing your employees. For instance, are you providing adequate benefits or opportunities for professional development? Are you addressing complaints that employees have about their working conditions? Give your employees a reason to want to stay at their job, regardless of position or industry.
Minimum wage increases won’t happen overnight. Protecting, or even increasing, your bottom line in light of an increased minimum wage is possible. But you have to be prepared.
For instance, you may want to limit hiring if you’re concerned about meeting a potential increase in labor costs. You can also consider revisiting your vendor contracts or leasing agreements and see if it is possible to renegotiate a new contract or change providers to save costs or find a more attractive plan to retain high-value employees. Small businesses and businesses experiencing low-profit margins may struggle under a minimum wage increase. But with creativity and planning, your business can survive and even thrive with labor cost increases in the works.