We are barely into a new calendar year with a new government administration and we are already deep into one of the most controversial subjects affecting most businesses: minimum wage increases.
The definition of “minimum wage” is the lowest wage per hour that a worker may be paid, as mandated by the federal law known as the Fair Labor Standards Act. (Although most businesses are covered by the FLSA, some may not be. Check with your accountant to see if this law applies to your business.) Individual states, municipalities and localities may enact their own minimum wage provided it is not lower than the federally mandated minimum wage which currently stands at $7.25/hour. For example, the minimum wage in Florida is currently $8.56/hour and is set to increase to $10.00/hour, effective 9/30/21.
“Income equality” is one of the biggest issues on the political agenda. Those in favor of minimum wage increases argue that it works toward ending poverty by lifting the wages by an estimated 35 million workers. Opponents argue against a minimum wage increase on the basis that it will destroy jobs due to increased costs, more out-sourcing and leading to more businesses using automation instead of a human workforce.
No matter your political leanings or arguments, minimum wage increases remain a contentious topic and a headache for HR departments, let alone small businesses where the owner IS the HR department.
Here are four tips to help your business prepare for upcoming minimum wage increases:
1. Re-visit your budget. In advance of any mandated wage increases, it’s a good idea to examine your budget to evaluate how any increased payroll costs could affect other overhead expenses such as utilities, inventories and supplies. By analyzing your existing and anticipated expenses, you will be able to create a comprehensive budget to help determine what adjustments or cuts you may need to make.
2. Don’t forget about taxes. Any increase in wages will mean an increase in payroll taxes. You will need to account for increases in Social Security and Medicare taxes and taxes on things like disability and unemployment insurance.
3. Consider your existing employees. Something else to consider is the effect that a minimum wage hike will have on employees who have been with you for a while. An increase in entry-level wages may be perceived as unfair to longer-term employees who have earned promotions and increases over their tenure with you. Consider the effect of minimum wage increases on your overall compensation structure and allow for associated increases in your budget as well.
4. Make strategic cuts. A lot of business owners assume that the way to offset increased labor costs is to either make staffing cuts and/or pass along the increase to customers. Before you make either of those decisions, determine if there are other cost-saving measures you can take. Is it possible to negotiate with suppliers or vendors to obtain better prices? Are any services you use unnecessary, or can they be obtained cheaper elsewhere? Before making drastic cuts, be sure that you won’t be jeopardizing your customer’s experience or the efficiency of your operation.
Mandated wage increases appear to be a trend that will be with us for at least the next several years. As a business owner, you are not alone in dealing with their effects. There are many resources and blogs available online to show how other small businesses managed these increases without cutting employees or decreasing their gross profit. Of course, your accountant or financial advisor can help you crunch the numbers to arrive at your best solution.
Numbers by Victoria, a bookkeeping service in Palm Beach Gardens, Florida, offers virtual bookkeeping services and other financial options for individuals and small businesses. Since our services can be performed virtually, we’re able to work with people all over the United States. To contact Numbers By Victoria, or to learn more about our bookkeeping services, please visit: www.numbersbyvictoria.com.